Why Paying Off a Loan Can Drop Your Credit Score

You made your last payment, celebrated being debt-free, then checked your score and saw it go down. Shannen asks why paying off a loan can actually hurt your credit, and Ellen Falbo, Chief Credit Officer at Possible, explains the counterintuitive system.

Ellen walks through how scoring algorithms treat closed accounts, why the dip is temporary and how positive trade line history stays on your bureau for up to 10 years. She also addresses the common advice about keeping your oldest account open and when that guidance is worth following.

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Transcription

More in this series

The most common reason credit scores drop](/content/series/the-most-common-reason-credit-scores-drop/index.html)

Andrew, a Possible member since 2021, is looking for a straight answer about what most often causes credit scores to fall. Ellen Falbo, Chief Credit Officer at Possible, names the single event that hurts scores the most and explains the life situation that usually triggers it.

How to plan for your future and get out of debt in midlife](/content/series/how-to-plan-for-your-future-and-get-out-of-debt-in-midlife/index.html)

Tiandra, a Possible member since 2024, asks Ellen Falbo, Chief Credit Officer at Possible, where a middle-aged woman should even start when it comes to getting out of debt. Ellen gets it. She offers a starting point that goes against what most of us were taught: put yourself first, before the debt.

Why Your Credit Score Varies by Bureau](/content/series/why-your-credit-score-varies-by-bureau/index.html)

Felycia wants to know why her credit reports never seem to match up. Ellen Falbo, Chief Credit Officer at Possible, explains how reporting delays, different scoring models and incomplete credit bureau data create those gaps. She also shares how Possible uses real-time cash flow data for a more current picture.

How Many Trade Lines Do You Actually Need?](/content/series/how-many-trade-lines-do-you-actually-need/index.html)

Sharon wants to know how many credit accounts a person should carry. Ellen Falbo, Chief Credit Officer at Possible, shares the number she personally keeps on her own reports and explains why intentional credit use matters more than volume.

Why Credit Drops Fast But Builds Slowly](/content/series/why-credit-drops-fast-but-builds-slowly/index.html)

Lisa asks why one missed payment can destroy her credit score while months of on-time payments barely move it. Ellen Falbo, Chief Credit Officer at Possible, explains the predictive logic behind the imbalance and what it takes to prove a missed bill was a one-time event.

Financial Literacy Class: Credit scores, budgets, and how to use both](/content/series/financial-literacy-class-credit-scores-budgets-and-how-to-use-both/index.html)

Your credit score affects more than your ability to borrow money. It can shape your housing options, career prospects, and insurance rates. This session, led by CCO Ellen Falbo at our Full-Court Finance event, covers the credit ecosystem and three practical budgeting methods, with real numbers and concrete examples to help you take control of your finances.

What Credit Score Do You Need to Buy a Car?](/content/series/what-credit-score-do-you-need-to-buy-a-car/index.html)

Damion is trying to finance a vehicle and wants to know what number to aim for. Ellen Falbo, Chief Credit Officer at Possible, breaks down the specific thresholds that matter, from smooth approval to tighter terms to alternative options.