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New Member
tr2010
Posts: 3
Registered: ‎10-24-2010
0

Does no longer having a mortgage affect credit

Hi,

 

I have very good credit score. I have always been punctual in paying off my credit card payments, auto loans, and mortgage payments. So right now me and my spouse are refinancing our 30 year mortgage (which we got 4 years ago) to a 15 year mortgage. 

 

We are planning on having the mortgage only in my spouse's name. Both of us have very good credit scores. I was having the following doubts and will really appreciate some advice regarding this:

 

1. I will still be continuing to pay credit card payments. And will also pay auto loan payments (for next 3 years). So if I no longer make any mortgage payments, will my credit  be affected?  Will my credit be built better if we actually decide on adding my name on the new mortgage and I make the payments for the next 15 years.

2. Will this affect my spouse's credit in a good or bad way?

 

Thanks,

T.

Established Contributor
stan_the_man
Posts: 855
Registered: ‎06-29-2010
0

Re: Does no longer having a mortgage affect credit

There are a couple things going on here:

 

1) Applying for new credit (refinancing the mortgage).

 

2) New account (new, refinanced mortgage).

 

3) Closing old account.

 

Everything below is based upon the assumption that the new mortgage loan is only going to be in your spouse's name.

 

1) Inquires have a slightly negative impact on credit scores. Mortgage inquires made in a small window are considered to be one instance of seeking new credit, or one inquiry for credit scoring purposes. I'm not sure of the exact length of the time frame, but I believe the shortest time frame is 14 days (and that it can be longer depending on which Fico model is used). Only the party applying for credit (your spouse) will see this very small impact to their credit. Inquiries stay on your report for two years, but are only used for scoring purposes for one year.

 

2) Opening a new account has a negative effect on credit scores for a couple reasons. One: It lowers the Average Age of Accounts, since the account with an age of zero is averaged with other accounts. Two: The Fico scoring model treats brand new accounts as a negative factor. Three: Since the amount borrowed is 100% of the amount owed, there is also some score loss due to having a 100% utilization for the installment loan (this is a relatively minor scoring negative). Since the loan is in only in your spouse's name, this only affects your spouse.

 

3) Closing the existing mortgage loan can, but will not necessarily, negatively affect Fico scores. The determining factor is something called credit mix. If you have no other open installment loans, then you might see a score decrease for not having an open installment loan as part of your credit mix. Keep in mind, that the closed loan will continue to report on your credit reports and factor into your Average Age of Accounts for 10 years, and that negative information will stay on your report for 7 years after the delinquency.

 

How this affects you vs. spouse?

 

You: No effect if you have other installment loans. If no other installment loans, small score decrease due to change in credit mix.

 

Spouse: Moderate score decrease due to effects of inquiries, and new accounts. According to what I've read here on the forums, your spouse should expect to get a good portion of reduced credit score back after about six months of the new loan reporting.

 

 

New Member
tr2010
Posts: 3
Registered: ‎10-24-2010
0

Re: Does no longer having a mortgage affect credit

stan_the_man, thanks for replying. Really appreciate it.


So looks like my spouse's credit will be fine in a few months. So for me, I only have auto loan which will last for another 3 years and I use 2 of my credit cards very actively. 

 

Basically, the difference in closing cost will be about $1500 more (not due to credit scores), if my name is to be added to the mortgage.  I am just trying to weigh the factors here and decide if it is worth paying 1500 more in closing right now and keep mortgage on my credit (or)

not pay 1500 more hoping that I am not losing out on building my credit ???

 

Any further comments/suggestions?

 

Thanks,

T

 

 

 

Moderator Emeritus
MarineVietVet
Posts: 14,576
Registered: ‎07-14-2009
0

Re: Does no longer having a mortgage affect credit

 


stan_the_man wrote:

There are a couple things going on here:

 

1) Applying for new credit (refinancing the mortgage).

 

2) New account (new, refinanced mortgage).

 

3) Closing old account.

 

Everything below is based upon the assumption that the new mortgage loan is only going to be in your spouse's name.

 

1) Inquires have a slightly negative impact on credit scores. Mortgage inquires made in a small window are considered to be one instance of seeking new credit, or one inquiry for credit scoring purposes. I'm not sure of the exact length of the time frame, but I believe the shortest time frame is 14 days (and that it can be longer depending on which Fico model is used). Only the party applying for credit (your spouse) will see this very small impact to their credit. Inquiries stay on your report for two years, but are only used for scoring purposes for one year.

 

2) Opening a new account has a negative effect on credit scores for a couple reasons. One: It lowers the Average Age of Accounts, since the account with an age of zero is averaged with other accounts. Two: The Fico scoring model treats brand new accounts as a negative factor. Three: Since the amount borrowed is 100% of the amount owed, there is also some score loss due to having a 100% utilization for the installment loan (this is a relatively minor scoring negative). Since the loan is in only in your spouse's name, this only affects your spouse.

 

3) Closing the existing mortgage loan can, but will not necessarily, negatively affect Fico scores. The determining factor is something called credit mix. If you have no other open installment loans, then you might see a score decrease for not having an open installment loan as part of your credit mix. Keep in mind, that the closed loan will continue to report on your credit reports and factor into your Average Age of Accounts for 10 years, and that negative information will stay on your report for 7 years after the delinquency.

 

How this affects you vs. spouse?

 

You: No effect if you have other installment loans. If no other installment loans, small score decrease due to change in credit mix.

 

Spouse: Moderate score decrease due to effects of inquiries, and new accounts. According to what I've read here on the forums, your spouse should expect to get a good portion of reduced credit score back after about six months of the new loan reporting.

 

 


 

I used to think this same thing but someone much higher up the food chain than I am told me this:

 

While both closed and open accounts are included in the mix, this doesn't mean that a closed auto loan or mortgage will always be as beneficial tp your score as an open one.  So, for example, you're typically going to be better off having some closed auto loan or mortgage than none. But having at least one open is better.

 

I know I've answered such questions before by simply saying that closed loans are included in the mix, and leaving it at that.  I apologize if this implied that there's never a difference between open and closed when it comes to the mix -- because there is.  But the short answer still is that, yes, closed accounts are included in the mix.

 

 

 

From a BK years ago to:
EX - 9/09 pulled by lender 802
EQ - 7/06-663, 3/10-800, 10/10-813
TU - 10/10-774
You can do the same thing with hard work

 

New Member
tr2010
Posts: 3
Registered: ‎10-24-2010
0

Re: Does no longer having a mortgage affect credit

Hi marinevietvet,

 

Thanks for your reply. If possible, can you please answer my question in Message 3:

.

So looks like my spouse's credit will be fine in a few months. So for me, I only have auto loan which will last for another 3 years and I use 2 of my credit cards very actively. 

 

Basically, the difference in closing cost will be about $1500 more (not due to credit scores), if my name is to be added to the mortgage.  I am just trying to weigh the factors here and decide if it is worth paying 1500 more in closing right now and keep mortgage on my credit (or)

not pay 1500 more hoping that I am not losing out on building my credit ???

 

Any further comments/suggestions?

 

Thanks,

T

 

Moderator Emeritus
MarineVietVet
Posts: 14,576
Registered: ‎07-14-2009
0

Re: Does no longer having a mortgage affect credit

 


tr2010 wrote:

Hi marinevietvet,

 

Thanks for your reply. If possible, can you please answer my question in Message 3:

.

So looks like my spouse's credit will be fine in a few months. So for me, I only have auto loan which will last for another 3 years and I use 2 of my credit cards very actively. 

 

Basically, the difference in closing cost will be about $1500 more (not due to credit scores), if my name is to be added to the mortgage.  I am just trying to weigh the factors here and decide if it is worth paying 1500 more in closing right now and keep mortgage on my credit (or)

not pay 1500 more hoping that I am not losing out on building my credit ???

 

Any further comments/suggestions?

 

Thanks,

T

 


What would I do? I would save the $1,500 but I'm a cheapskate.  :smileyhappy:

 

In my opinion it's not worth it but only you know your exact situation and only you can decide what to do for yourself. If you live in a community property state it might be required that both names be on the mortgage. I just don't know. I am absolutely no mortgage expert by any means.

 

Hopefully one of the true mortgage gurus will come along and give you better advice than I can.

 

 

 

From a BK years ago to:
EX - 9/09 pulled by lender 802
EQ - 7/06-663, 3/10-800, 10/10-813
TU - 10/10-774
You can do the same thing with hard work

 

 

 

 

 


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