Refinanced auto loan, old account closed new one opened with same debt but credit score dropped 60+

AJ J Asked: Refinanced auto loan, old account closed new one opened with same debt but credit score dropped 60+

I refinanced my 60 month auto loan which was at 6% to 3% at the 20 month mark to save myself some money. I refinanced with a new bank and the terms are now 40 months (but since I paid 20 months into the 60 month term the balance and payment is pretty close to the old account). I subscribe to transunion and can see my accounts/credit scores. I noticed when the old account was “removed” and new account “added” my credit score dropped about 60 points instantly!! The debt did not increase, it actually is getting lower every month as I pay my auto debt. Why did the act of refinancing drop my score so dramatically? This is from the official transunion site using vantage score (dropping form 820 to 760 approx). Is “opening” the new refinanced account making it look bad? Shouldn’t the “closed” account be seen as a transfer and not like I am losing and adding accounts in just a few days?

I though refinancing was actually good not just to save money but for your credit score too since it adds a mix of installment credit?

I was just wondering as I was not expecting a 60 point drop in 1 day due to refinancing and having the same number of debt.

Answers:

A Hunch Answered:
Based on your description, it’s because you lost payment history.

When you say “removed” the old loan, no longer shows on your credit report?
– it’s not listed as “paid in full” or “closed by XYZ”?

What i would have expected:
OLD loan – classified as “paid per agreement”, “paid in full, “closed by customer or lending institution”
New loan would appear as a new loan with one month of payment history.

 

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