Punished by FICO for paying off my mortgage

[Anonymous]

I finally paid off my mortgage. Nothing else has changed in my credit file. Expecting to see a few more points added to my score because now I am debt-free I looked at my Credit Karma scores (don't start telling me about CK, I use it as a constant, not as a definitive score - for direction only). What do I see? I LOSE 21 points on the 2 Bureaus CK uses.

Can anyone explain to me how becoming debt free LOWERS a FICO score? I would think an extra $1000 a month in my pocket would make me MORE creditworthy, not less.

[gdale6]

If the mortgage was your only open installment loan then yes closing it typically results in a Fico score drop in Fico 08. FIco is based on the usage of credit so if you are not using credit your Fico will decrease over time. Best thing for Fico scoring is to have at least 1 revolving card report a small balance every month and the other revolvers at 0

[Anonymous]

So now I have an interesting dilemma - these 20 points put me into the "Fair" credit range. Meanwhile I am retired with no credit cards and no debt. I don't anticipate needing to borrow any monet ever again in my life.

Is there a reason I even need to care about a FICO score?

[Anonymous]

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@Anonymous wrote:

So now I have an interesting dilemma - these 20 points put me into the "Fair" credit range. Meanwhile I am retired with no credit cards and no debt. I don't anticipate needing to borrow any monet ever again in my life.

Is there a reason I even need to care about a FICO score?

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Seems like you answered your own question. ...

[Anonymous]

Depending on the state, auto & home insurance rates can be based off credit rating.  Although which score & what affects it would vary.

[SouthJamaica]

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@Anonymous wrote:

So now I have an interesting dilemma - these 20 points put me into the "Fair" credit range. Meanwhile I am retired with no credit cards and no debt. I don't anticipate needing to borrow any monet ever again in my life.

Is there a reason I even need to care about a FICO score?

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1. You're in in enviable position; no you needn't care.

2. Even if you did care, there's really nothing to worry about. As your accounts age, your score will go up, without your doing anything at all except what you've been doing.

3. If you cared about getting those points back quickly, there's a way to do it:

-go to Alliant Credit Union web site, open up a savings account, deposit at least $500

-take out a share secured $500 loan against the savings account, with a 48 month term (no credit check, miniscule interest)

-decline autopay

-let the loan report

-after it reports, pay off 91% of it (from the savings account, leaving a loan balance of ~$45)

-within 2 months you'll have the points back, because under FICO's dumb algorithm you will have a low-balance installment loan back in your "credit mix"

-then pay $1 month towards the loan for the rest of the term

[Anonymous]

Hey SJ!  You write:

"Even if you did care, there's really nothing to worry about.  As your accounts age, your score will go up, without your doing anything at all except what you've been doing."

The OP has no open accounts of any kind any more: no credit cards, no installment loans.  All of the OP's accounts will drop off at some point.  It may be the case now that the OP's profile consists of exactly one closed file.

If the OP did care about having a decent credit score, it would not be the case that he or she could sit back, do nothing, and expect the score to go up.  On the contrary, the OP can be confident that by doing nothing he or she will have no score of any kind in the forseeable future.

[Revelate]

"Is there any reason to care?"

Yes: namely, the future is impossible to predict.  Sudden medical expenses being the typical example... get 3 credit cards, use them sparingly (or run your financial life through them for the rewards) and pickup the silly installment loan from Alliant or others and prepay most of loan balance and keep your credit score healthy with minimal effort as it's an absurdly cheap insurance policy if the unfortunate does happen.

[Thomas_Thumb]

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@Anonymous wrote:

So now I have an interesting dilemma - these 20 points put me into the "Fair" credit range. Meanwhile I am retired with no credit cards and no debt. I don't anticipate needing to borrow any monet ever again in my life.

Is there a reason I even need to care about a FICO score?

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I would strongly recommend you get a credit card and use it occassionally to maintain an active credit file. It is prudent to maintain active credit in the event something comes up.I plan to be debt free in 5 years (mortgage paid off). I fully expect my Fico score to drop 30 points but the presence of open & active credit cards will help maintain my credit.

Credit cards are a convenience for me and represent less risk than debit cards. I suspect retirement income in the form of SS, pension and investment dividends will qualify you for a credit card. I'd recommend going for a credit card with a $2500 to $5000 limit.  That way you can actually use it and allow a $500 to $750 balance to report on a statement without concern. If you pay the statement amount in full every month, there will be no interest charges. Heck, you may even get some cash back rewards.

One card worth considering is Discover card. Alternatively, you may want to consider a Mastercard or Visa issued by the bank you maintain savings accounts with.

Congratulations on being debt free and best wishes.

[Anonymous]

I keep at least $10,000 in the bank at all times to cover any emergencies. With what happened to my score there is simply no way I can get a credit card, sdo why rack up the inquiries (and further loss of points) trying?