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I never thought I’d drive a minivan. But in 2014, when I found out I was having twins and already had a toddler underfoot, I realized I needed a vehicle with a third row to fit all of those car seats.

I technically had enough money to buy my minivan outright, but it would’ve depleted an uncomfortably large chunk of my savings account. So like many car buyers, I financed it with an auto loan and was fortunate to get a pretty competitive interest rate.

For three years, I made payments on that auto loan every month like I was supposed to. And boy was I happy to shed it once my car was paid off.

But something surprising happened to my credit score once I paid off my car. And it wasn’t surprising in a good way.

When you pay off a loan and your credit score takes a hit

You’d think that paying off a large loan would cause your credit score to improve. After all, it shows you’re less tied down with debt payments and may be in a better position to borrow money.

But when I paid off my car, my credit score actually dropped. And while it wasn’t a huge hit, it was noticeable enough.

I did some digging to see why my credit score fell following my loan payoff, and it turns out there was a good (but annoying) reason. Your credit score consists of different elements. The bigger factors that go into it include your payment history, which speaks to how timely you are with bills; your credit utilization, which shows how much revolving credit you’re using at once; and the length of your credit history.

My auto loan wasn’t a particularly lengthy one — we paid off my car in three years. But still, that may have slightly shortened the average age of my open accounts, resulting in a small hit.

The factor that I think hurt me even more, though, was the impact on my credit mix. Your credit mix is also accounted for when calculating your credit score, and it refers to the types of accounts you have open.

Installment loans like auto loans are often regarded as a more favorable type of debt than a credit card balance. So when I paid off my car, my only remaining installment loan was a mortgage, and the rest of my accounts were credit cards. That better explains the roughly 15-point drop in my credit score.

How to protect your credit score

Let’s be clear about one thing. You should never not pay off an installment loan on time for fear that your credit score will drop once that debt is gone. Falling delinquent on loan payments could hurt your credit score far more than paying off a loan when you’re supposed to.

But there are a few ways you can keep your credit score in great shape or boost it if it needs a lift. In addition to paying all bills on time, aim to keep your credit card balances as low as possible so your utilization ratio stays to 30% or below. In other words, if your total spending limit across your credit cards is $10,000, keeping your outstanding balances to a total of $3,000 or less is essential.

And if you’re juggling balances across multiple cards, it could pay to consolidate that debt with a balance transfer. Click here for a list of the best balance transfer credit cards.

Also, while you should pay off an installment loan on time, you shouldn’t close old credit card accounts just because you’ve replaced those cards with newer ones. Instead, keep those old accounts open — especially if you’re not being charged an annual fee by the credit card issuer. You can keep your accounts in good standing by putting a small recurring charge on them that you pay in full every month.

Finally, avoid applying for too many loans or credit cards within a short period. Each time you apply to borrow money, a hard inquiry is done on your credit report that can result in a five- to 10-point drop. A single hard inquiry won’t do much damage. But a few hard inquiries in short order could result in a more noticeable decrease in your credit score.

Then again, so can paying off your car loan, apparently. But there was nothing I could’ve done back then to prevent that credit score hit, and there’s nothing I, or you, can do either in a similar situation. So if you’re about to pay off a large loan, your best bet is to focus on the other steps you can take to keep your credit score in the best possible shape.

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