Paying off my mortgage next month

[Anonymous]

Some time in early April I will be paying off my last mortgage.  Original amount $100K, currently at $18K. When that is done I will have one installment loan (opening balance $15,000 current balance $9,000 never late) and 5 credit cards (collective lines over $50K, in use less than $500 and paid in full every Saturday). My oldest active TL is 3 years, I have paid Satis TLs going back almost 10 years.

Taking bets - how many points will I lose when I pay off my mortgage? It happens every time I pay off a large debt - house or car - makes no difference. My current scores are 797 to 825. Last time I paid off a mortgage I lost 60. My scores at the time were in the low to mid 700's.

[Revelate]

Maybe 10 points if you cross the upper breakpoint as you have another loan outstanding. 

60 points I find hard to believe for any FICO scores TBH.

I'd be interested to see the datapoints anyway, and also would be interested to see what happens if you paid the mortgage down to $20 and letting that report before paying it off entirely.  Science and all that .

[Anonymous]

Here is a data point.  I had heard that paying off a mortgage could lower your FICO but had guessed it would be 10 or 12 points at most.  Experian hit first and my score dropped 19 points. Equifax hit today and I lost 27!   Curious if this will be a temporary hit or if I will be permanently dinged for not having a mortgage. 

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[Anonymous]

It's permanent. FICO does not like paid off debt. Before I paid off my mortgage a year ago all 3 of my scores (FICO 8) were over 800+/-15. Now, with no debt my scores are 775+/-10 and are stubbornly stuck there.

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@Anonymous wrote:

Here is a data point.  I had heard that paying off a mortgage could lower your FICO but had guessed it would be 10 or 12 points at most.  Experian hit first and my score dropped 19 points. Equifax hit today and I lost 27!   Curious if this will be a temporary hit or if I will be permanently dinged for not having a mortgage. 

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[Anonymous]

I had a feeling this would happen. My Equifax went down 27 points to 809. My husband's wend down 18 points from 850 to 838.  I wonder when we get a new car loan in a few years if an installment loan will help because we will have a mix again.  

I understand that at this level the decrease won't really affect anything but it sure seems like a strange part of the algorithm to me.  I can understand the ding for never having a mortgage, but can't understand why paying one off would increase one's credit risk.

Still, with retirement on the horizon, I will trade a few FICO points for peace of mind lol

[Kforce]

When I paid off my last house. 

I had three older mortgage loans paid off but showing on reports.

Also a few paid off car loans. 

No other installment loan

Lost 15 points.

Gained the 15 back, probably aging accounts three years post.

It is not always a large hit, and better to be out of debt than worry about Fico

[Anonymous]

Yes- I have 2 other paid off mortgages (investment properties) 2 paid off car loans and 2 paid off HELOCS that still report. I also have my current HELOC (opened 5 months ago .008 utilization).  

I totally agree that those points don't mean much in the grand scheme of things.  It just logically confuses me as to why a mortgage payoff would be a risk factor.  My understanding has been that FICO uses actual data to calculate risk and create the algorithm.

Do people pay off their mortgages and then default on other loans?  It seems odd to me.

I will report back in a few months if I have any interesting data points.

[sxa001]

There is a saying around here I like "Finances before FICO".  Paying off a mortgaage is a huge accomplishment, personally I would gladly have a FICO score above 760 and no installment loans.  

[Anonymous]

I would agree

To clarify- I'm not stressing over my score- I'm just interested in the logic.  I run a lot of credit reports in my business every year, and have been a "student of credit" for decades.  The score fluctuations usually make some sense.  This one doesn't.

 I had heard that it happens but the large decrease seemed odd to me.