topic Mortgage Loan Payoff - Score Dropped in Understanding FICO® Scoring

Mortgage Loan Payoff - Score Dropped

Anonymous — Sat, 28 Jul 2018 15:10:44 GMT

I recently paid off my home mortgage. For some reason this payoff reduced my score by 25 points. Why would my score drop for a payoff of a mortgage that never had any late payments?

Re: Mortgage Loan Payoff - Score Dropped

Anonymous — Sat, 28 Jul 2018 15:32:48 GMT

The FICO 8 model likes it a lot when you have open loans that are mostly but not entirely paid off.

If you list all your loans, with the balance and the original loan amount, we can walk you through in more detail how that works. In that list include the mortgage with the balance being just before payoff:

Loan 1. Balance = _____ Original loan amount = ____

Loan 2. Balance = _____ Original loan amount = ____

Loan 3. Balance = _____ Original loan amount = ____

etc.

If you have no open loans at this point (that includes car leases, etc.) still give us the balance and loan amount for the mortgage.

Re: Mortgage Loan Payoff - Score Dropped

SouthJamaica — Sun, 29 Jul 2018 14:38:53 GMT

@Anonymous wrote:
I recently paid off my home mortgage. For some reason this payoff reduced my score by 25 points. Why would my score drop for a payoff of a mortgage that never had any late payments?

I know it makes no sense, but if it was your only open installment loan, FICO 8's algorithm penalizes you -- instead of rewarding you -- for now having no open installment loans.

If on the other hand you do have one or more other installment loans, your paying off the mortgage probably increased your overall installment loan utilization percentage -- based only on open loans.

It is less clear how this would affect your other FICO scores. My experience, relating to a non-mortgage installment loan, was that the TU mortgage score dropped a little, and the other 2 mortgage scores neither went up nor down.