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Why Does Your Credit Score Drop When You Pay Off A Debt?

credit score

Imagine this:

After what feels like forever, you finally pay off your debt. You know… that debt. Maybe it’s credit card debt that you’ve carried around for years. Perhaps it’s the student loans you never thought you’d get rid of. It could even be medical debt.

Whatever debt it is, you’ve paid it off and it’s gone – forever!

You feel relief, satisfaction, and a deep sense of personal accomplishment. Heck, yeah!

Until you notice that your credit score dropped. What in the world? Why did my credit score drop after paying off my debt? Shouldn’t my credit score improve? What happened?

This post originally appeared at The Budget Mom.