It only negatively impacts your credit score if you are a bad credit customer.

A good credit customer with low credit would be one that has a few credit cards. They likely have a low limit because they have poor credit…say $750 each on three cards. A good credit customer would not let the balance exceed 1/3 to 1/2 of the limit, and pay the statement balance in full.

Now, suppose this person has these cards for one year, and another person with no credit cards or history, buy a 36 month car loan valued at $5000. To make the math simple I’ll say 0 interest, it doesn’t really matter for this level of explanation.

Customer A understands the game. They do exactly what they are supposed to, and are rewarded with a better reputation with the creditors, as well as a higher limit on their cards…lets say $2000 (though being a good credit consumer, they still do not charge more than they can afford to pay each month, and keep their balances under 1/3).

At the 35th month of this car loan, Customer A has:

• 4 accounts total - three credit cards that are ~48 months old, and one car loan that is ~36 months old. Average age of accounts is 57 months.
• A total available credit of $11,000 (the 5k loan and three 2k cards), with a total reportable balance of $139 (the last car payment).

Meanwhile customer B has:

• One account that is ~36 months old. Average age of accounts is 36 months.
• A total available credit of $5000 with a reportable balance of $139.

Right off the bat, Customer A is looking like a far safer customer to lend money to.

At the 36th month, Customer A has:

• Three open accounts that are 49 months old and one closed account that is 36 months old. Average age of accounts is 58 months. Still trending up.
• A total available credit of $6000 with a reportable balance of $0.

Customer B has:

• No open accounts and a closed account that is 36 months old. Average age of accounts is 36. Now stagnant.
• A total available credit if $0 with a reportable balance of $0.

At the 40th month, customer A has:

• Three open accounts that are 53 months old and one closed account that is 36 months old. Average age of accounts is 62 months. Still trending up.
• A total available credit of $6000 with a reportable balance of $0.

Customer B has not changed.

It’s not that Customer B did anything wrong by laying their bill on time, it’s more like a divide-by-zero error. The sole source of information on their credit reputation has stopped reporting information and reported that they have ended their business relationship on good terms.

Had customer B been more like customer A (and honestly, those rules aren’t that hard to stick to…don’t charge too much and pay it off every month. That’s a very low bar to set for responsibility), it would be a little blip on their report that would even out over a few months. But because they didn’t, there is no new information coming in about their behavior as a credit customer. For the lenders, they aren’t following “no news is good news”. They need data to show that you are still willing to play by a very simple set of rules.