today in this video we’re going to talk
about
why did your score drop when you paid
off your car
why did your credit score drop for no
apparent reason
check it out
[Music]
hi i’m rhonda burgess and i’m a real
estate broker and mortgage underwriter
here in nashville tennessee area
and my firm is southern living realty
partners
okay i want to go over this point
because i get a lot of questions
about your score dropping especially
when you pay off
your car you need to understand
that your car note is an installment
loan
and for many of us that installment loan
that car note may be
the longest reporting trade line on our
credit report
because maybe you had this car four or
five years whatever
your and you pay it off two things
happen when you pay off
your car note first of all
that loan is going to start reporting as
closed
once you pay it off you’ve made all the
installments you paid it up early
whatever
but once you pay it off it’s going to
report as closed
whoever your car note is with they’re
going to report that
trade line as closed so
unfortunately if that was your longest
reporting trade line
the longest reporting trade line on your
credit report and now it’s closed
your score is going to drop i mean it’s
supposed to
uh report closed once you pay it off but
unfortunately that’s just how the
scoring model is
when you pay off especially some of your
long-standing credit let’s say you’ve
never missed a payment okay
so every month you had zero times thirty
zero times sixty zero times ninety
reporting because you’ve always paid
that car note
on time okay once you pay it off
it’s closed there will be no more
history reported there will be no more
positive history there will be no
more anything reported on that trade
line
so the scoring model is going to drop
it’s going to drop your score
simply because you paid off your car
note
and now that installment loan is
reporting as
closed one other point i want to make
about the
uh the car note the installment loan
if only if the only thing you have
reporting on your credit is installment
debt
installment loans like either a
signature a personal loan
or a car note when you pay that
off you have no
really you don’t have any credit
reporting remember the credit score
model
looks at your revolving credit first
that’s where you get the most of your
points from is from your revolving
credit
so if you have a car note or maybe two
car notes on your on your credit report
and you don’t have
any revolving credit you don’t have a
visa you don’t have a mastercard
american spreads you don’t discover you
don’t have no revolving credit
when you pay off that car your score is
going to
tank because you have nothing else you
have nothing
else good to report
because you have paid off your loan
i know it’s not fair i know it’s not
cool but i’m just telling you
that’s another thing that will happen if
you don’t have anything else reported
but your car note when you pay off that
car note your score will drop
reason why your credit score may go down
is simply because you used your credit
your
your utilization your credit line
utilization increased
and perhaps you increased
a trade line let’s say it’s only a
thousand dollar trade line
okay you’ve got four or five other trade
lines
that are 2 000 or 3 000 or maybe even
just a few hundred
but because you took that one trade line
that had a thousand
available and let’s say you charge
something for five hundred dollars
you just took that one trade line down
to 50
50 utilization if you have a thin
credit file meaning you don’t have a lot
of credit
yo your trade lines are not uh haven’t
been established for a long time
um you you’ve added a lot of credit here
recently you and i don’t mean
a lot i mean like you could have had
like two two new cr
two new trade lines or whatever but if
your trade
your trade lines are thin and they
haven’t been reporting that long
when you use your credit i know it don’t
make no sense i know it don’t make no
sense but when you use it
they liable to ding you because you
actually used your credit
and you took your credit utilization up
higher
than what the scoring model is used to
seeing
i have people who call me all the time
and say well i didn’t do anything
different with my credit
i don’t understand why my credit score
dropped 50 points 40 points
um things like this you need to make
sure that you
that you have a credit mix
a good credit mix you need some
installment debt you need some revolving
debt
again you need some revolving debt let’s
just be honest
when you are not using your credit
meaning that every month when the credit
bureaus
update when your creditors report and
they’re showing a
zero as far as your utilization
sometimes that will cause your credit
score to drop
just simply because you’re not using
your credit i know it sucks that the
credit score
model likes debt
it likes debt so when you are
totally debt free your score is liable
to drop but
it’s liable to drop but i’m gonna tell
you for one thing for certain it won’t
move
it won’t go up it will not go up when i
was
um you know i’ve been on this credit
score journeying my dog on self
for a while and i’m gonna tell you when
i was paying everything look i was
keeping up with
the statement date on my cards and
everything and i was making sure i was
paying it and it was zero
i made sure it was zero i paid it in
four i paid it at four
i couldn’t crack 700 to save my life i
could
not do it i tried everything
you know how to credit i had a lady to
talk about credit all the time
can’t correct 700. i i was like okay
something’s wrong with me
but let me tell you when i started
letting
just 10 utilization on my card report
every month
so like uh one of my cards had a 20 000
has a 20 000 uh available credit okay
so and this is how i do this is how i do
mine
you know y’all do whatever works for you
but i don’t pay
individual bills anymore i don’t i have
everything built
that i can except for my mortgage and
my car note i have those billed to
one of two cards because they give me
reward points and they give me reward
dollars in fact
my my navy federal gives me you know
cash back
so i have everything built everything
for my businesses for my personal
everything bill to those credit cards
okay
and so what i was doing was i then i
would you know like i said i was
checking my statement date and i was
making a payment before the statement
date so that when it did report it was
reporting
zero so when i changed it
and so now like on the twenty thousand
dollar card i let two thousand dollars
post
so that’s what the credit bureau is
seeing two thousand
out of a twenty thousand dollar line i
went up over 700 i’m at 740 now
and that’s what i do i keep my
utilization at 10 but i
show utilization i know it’s not fair
trust me it don’t make good sense but
the credit score
model it i told y’all is about risk
it’s totally about risk for the bank so
the bank wants to know
can you handle your money
so i this is just my hypothesis i’m just
telling you what worked for me
i think when i was paying everything in
full and it was showing zero balance it
looked like i don’t use my credits
so they were like okay you know what she
may be a little bit more risky
because she has these large available
balances and she’s not using her cards
like you know some could have she could
go max out her cards today
something could happen or whatever and
then she’s not able to pay this back
but simply because i showed that 10
utilization on those two cars it’s just
two of them the other ones i still pay
them
paying for you know um
it’s just these two that i have these
the the two that have the largest
available credit i show 10 utilization
month after month
i still pay it in time so that there’s
no i’m not paying any interest
but i do pay it on the due date
uh or a little before the due date but
after the statement date
so that it helps my credit score
that’s just personally what works for me
and
especially for some of you all who have
some higher credit limits and different
stuff like that you may want to try just
using getting it down to 10
utilization but use it those of you who
are not using your credit
to get a higher credit score you gonna
have to use your credit
you know you may have to pay a little
interest here there on your balances but
that’s the only way you’re going to get
the score up
and that will keep your score from
dropping
so drastically as opposed to when you
don’t use your credit at all
and one last reason why your credit
score may drop
uh i alluded to this in one of my last
videos
about these little phantom bills that’ll
pop
up you may not have done anything to
your credit you may be thinking
everything’s peach keen everything’s
fine you rocking along
you getting you ready to get
pre-approved you ready to buy you a
house you ready
you know make some moves
and your credit score drops for no
reason
you think it’s no reason go in there go
look at that credit report
i’m telling you a 30 dollar
insurance copay that you didn’t pay or
46 dollars left over from a lab bill
that you didn’t pay
in 2017 or 2018
i’m i ain’t even talking about this
stuff got to be recent i’ve seen it
so often these little bills that you
didn’t pay no attention to
will crop up and they will tank your
score
thirty forty dollars you know like i
told you my daughter had a bill for six
dollars and eighty one cents i told her
you better pay it
you better pay it because you don’t want
it on your credit report
you’d be surprised how many times those
little bitty bills can trip you up
i know you just paid off a 20 000
automobile
and you feeling good about yourself
because you’ve you’ve accomplished
something
you know what you know i’m your biggest
cheerleader that’s what i’m talking
about do the doggone thing
but then it’ll be a 20 bill that will
trip you
up and keep you from being able to buy a
house
or or you know or to rent a nice
place or whatever whatever the situation
is
but just check your credit report and
make sure it’s not these little bitty
phantom bills from
years ago that’s cropping up and has
made your
score drop again my name is rhonda
burgess i’m a real estate broker
and mortgage underwriter here in the
nashville tennessee area
if you need help with uh buying or
selling a house here in the
nashville middle tennessee area i’d be
glad to help you you can reach me at any
time
with any questions my number is
615-554-0832
thank you and as always have a blessed
day
