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If I pay off a large mortgage, does it help...or hurt your fico score?

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Anonymous
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If I pay off a large mortgage, does it help...or hurt your fico score?

The reason I asked is because as I understand it if you close an account it can hurt your score.   Since paying off a mortgage is technically "closing" an account what does it do to your score?

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upnorth
New Contributor

Re: If I pay off a large mortgage, does it help...or hurt your fico score?

I think it is better to pay off your mortgage if you can, rather than worry about any minor impact on one's credit score.

 

My own impression is that these scores are very flawed. Think of it, if you were going to loan some one money would you first consider their income and debt and assetts and liabilities or not? The FICO scores have nothing to do with income and assetts. In effect one's score is dependent on how many cards one has used and accumulated debt (and just managed to keep avoiding a missed payment). So some one who was prudent and did not take out many cards and thus has a higher portion of the balance on a  single card, his/her  FICO score would be low. Worst that person could be earning a high six-figure salary and still be denied credit due to a low score.. 

 

The credit problems we are facing today is because creditors are relying on a flawed credit rating model. The day creditors start going back to the old days when the local bank would look over one's income/expenses and assetts/liabilities, we will see less free credit available and also less bankruptcies. 

 

I have paid off my mortgage and only use 2 cards for getting cash back. If there was no cash back, and banks could protect the checking accounts like credit card companies do for fraud charges, I probably would not use a credit card, just a bank check card would suffice.

Message Edited by upnorth on 06-19-2009 08:02 AM
UNFCU Visa Azure $45k, Sams Master Card $35k, Amex Costco $25k, Fidelity Visa $25k, Chase Freedom $18k, Cap 1 Mastercard $12.5k, Kohls $1.5k, Cancelled on my own BA $25 (it was Schwab card earlier) and Chase Saffire $22k. Also have 2 business cards with Chase and 1 Amex Open. AU Target $2500.
Scores: 11/14 EX 801; 11/14 TU FICO 805; 11/14 Van 823
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haulingthescoreup
Moderator Emerita

Re: If I pay off a large mortgage, does it help...or hurt your fico score?


ntkebh wrote:

The reason I asked is because as I understand it if you close an account it can hurt your score.   Since paying off a mortgage is technically "closing" an account what does it do to your score?



Generally the only time that there is immediate hurt from closing an account is when you close a credit card while you have balances on other cards. Losing the CL on the closed card can increase your total revolving util enough to drop your score.

It's possible that no longer having an open mortgage will result in a slight dip due to loss of credit mix, if you don't have any other open installment accounts. But it's usually not much, and there are plenty of people in the 800 club with no open mortgages.

Otherwise, any damage is pretty much delayed for the ten years that the closed account generally stays on your reports, helping your age, except with Equifax, who has begun throwing out closed accounts pretty much any old time.

I agree with PP: paying off your mortgage far outweighs any score considerations. Congrats!
* Credit is a wonderful servant, but a terrible master. * Who's the boss --you or your credit?
FICO's: EQ 781 - TU 793 - EX 779 (from PSECU) - Done credit hunting; having fun with credit gardening. - EQ 590 on 5/14/2007
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