Why did this happen?
How long will it take to recover?
-L.
Dear L.,
Isnt it ironic?
Your credit score is supposed to predict how likely you are to repay debt.
Yet you paid off your car loan early, only to see your score drop.
I share your pain.
I thought I was on the road (pun intended) to good credit.
But to my chagrin, my score fell by about 50 points.
This can happen for two reasons.
And your credit mix makes up 10% of your FICO scores.
So if youre closing your only installment loan, closing the account could cause a drop.
Probably not as good as youd like.
It always seems like an uphill battle to build (and keep) a decent amount in savings.
But what if your car breaks down, or you have a sudden medical bill?
If you have little or no credit available, consider applying for a credit card.
If the account was closed in good standing, it will stay on your reports for about 10 years.
After a few months, your scores will probably rebound.
Mine did after about three months.
The bottom line: Dont worry too much about your credit score for now.
Youve made a smart money move.
You have one less bill to pay.
You have extra cash each month.
Now go forth and enjoy the open road knowing youre no longer tethered to a car payment.
Dear Penny is a personal finance advice column produced by The Penny Hoarder.
Have a tricky money question?
WriteDear Pennyand you might see your question answered in an upcoming column.
Robin Hartill is a senior editor at The Penny Hoarder and the voice behind Dear Penny.
It sounds appealing right?
Check it out here!
