Mortgage payoff and FICO score

[GBR]

Finally payed off the mortgage. MyFico detected account change and FICO score dropped 18 points. Is that common? I would think that less debt should not impact the score in negative way.

[Anonymous]

Did you have any other open installment loan(s)?

If so, what were the other loan(s), how much were they originally for, and how much do you owe on them now?

If you can let us know that, it will help us explain why you had a score drop.

[SouthJamaica]

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@GBR wrote:

Finally payed off the mortgage. MyFico detected account change and FICO score dropped 18 points. Is that common? I would think that less debt should not impact the score in negative way.

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Yes, as dumb as it is. Because your 'credit mix' is reduced.

[Anonymous]

It seems to us, as consumers, that we're being punished for doing exactly what we were supposed to do. You pay off the loan and your score drops.

But your FICO score is made primarily for the lender to use as a tool to quantify the risk of a potential borrower. And from the lender's perspective, there is a certain logic to it. It makes sense that a borrower who is currently in the habit of servicing an installment loan would be a slightly better risk than a borrower who used to be in the habit of servicing an installment loan.

[Anonymous]

And as I said earlier, if you tell us the status of your other open installment loans, then it's easier to shed light on why the score dropped.

Paying off a mortgage could easily cause a person's score to rise.  It depends almost entirely on what other open installment loans that person has (if any), what the original amounts of the loans were for, and the amount owed on them.  We'd also need to know the amount owed on the mortgage just before it was paid off and the amount that the mortgage was originally for.

[Thomas_Thumb]

Good point.

If someone had a high % balance on a mortgage and a low % balance on a car, sale of the house and closing the mortgage would leave onlya low balance installment loan. That may help score in the amount owed category.

[Anonymous]

You know, I've got the same issue.  but in my case, I had two mortgages, paid off one and paid down all of my revolving charge balances.  and my score dropped about 20 points... seems silly.. maybe it's just timing

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@GBR wrote:

Finally payed off the mortgage. MyFico detected account change and FICO score dropped 18 points. Is that common? I would think that less debt should not impact the score in negative way.

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[Anonymous]

Hi Nanaplane.  Sorry to be sounding one note on this, but (as I mentioned to the OP) to guess why your scores dropped, we'd need to know the following:

*  The amount owed on the mortgage at the time that it was paid off.

*  The amount that this loan was originally taken out for.

Likewise, we'd also need to know the amount owed and original loan amount for all other open installment loans (your other mortgage, auto loans, student loans, personal loans, etc.)

It's very possible to pay off a mortgage and for that to cause your scores to rise a lot.  It's also possible for paying off a mortgage to cause your scores to drop a lot.  It depends very much on those balances and loan amounts.

Finally, it sounds as though around the same time you paid down your credit cards.  That helped your score (assuming you still had one card with a small positive balance).  To try to separate the bonus from the CC paydown from the apparent penalty due to your loan payoff, we'd need to know:

Before the paydown:

How many open credit cards did you have?

Of these, how many had a $0 balance?

Of these, how many had a high balance (compared to the card's individual credit limit)?

What was your CC total credit limit?

What was your CC total credit debt?

Then we'd need all the same info for what they were like after the CC debt paydown.

Without all that info, all that one can say is, "Sometimes a person's scores go up and sometimes they go down, and it has something to do with what they are doing."  But there'd be no way to make any meaningful guess as to what caused it.

Glad for you that you are paying off debt!  Best wishes....

[Anonymous]

So, 
I had two mortgages. one relatively new (nov . last year, about 350K) and one older (original about 460K, paid this one off of about 430K)

We have on installment loan (car), original about 28K, remaining about 24K), We had 18 revolving / CC accounts, total was about 50K, remaining is now about 4K.. most of them have small to medium balances (0 to 15% of the limits)

When we paid off the older mortgage (sold the house), we utilized the profits to pay down most of that 50K.. a couple of the cards are now at 0.  That wasn't long ago though (last month), all the agencies have just noticed the Mortgage payoff and that havent all notices all the revolving account paydowns... (most think we still owe 20K).
I did a credit report at the end of last month but it didn't show quite "current" values

[Thomas_Thumb]

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@Anonymous wrote:

You know, I've got the same issue.  but in my case, I had two mortgages, paid off one and paid down all of my revolving charge balances.  and my score dropped about 20 points... seems silly.. maybe it's just timing

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@GBR wrote:

Finally payed off the mortgage. MyFico detected account change and FICO score dropped 18 points. Is that common? I would think that less debt should not impact the score in negative way.

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Fico 08 likes to see one or more open installment loans with a low aggregate balance to aggregate loan ratio. The reason why GBR's Fico 08 score went down was closure of an open loan that likely was mostly paid off prior to closure.

Nanoplane, Fico 08 looks at total of open installment loan balances relative to total of initial loan amounts for the open accounts. In your case I suspect the one loan was mostly paid off and the other is relatively new. For example:

Say you have 2 mortgage loans each of $100k with one paid down to $95k and the other down to $5k. Then your aggregate B/L is (95 + 5)/(100 + 100) = 50%.. Now you pay off the mortgage with $5k. Your new B/L which only considers open accounts is $95k/100k = 95%. So youe B/L jumped from 50% to 95% and score dropped as a resule.

We have been looking at B/L before after results for quite some time in an effort to nail down thresholds that impact score. If you could share before/after B/L ratios for your case that would be helpful. Also, as CGID mentioned, other factors such as revolving account utilization could be affecting score independently. If you have data for that as well it may help in isolating root cause or causes for the shift in score.