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I Paid off my House and my Credit Score Went Down?


QUESTION:


"Bob, My FICO score was 810. I paid my house off, and my score dropped to 760 that same month. Any idea of why the drastic change? I checked on Experian, and there was no suspicious activity."

ANSWER:


There are six parts to credit scoring.

  • Payment history: Measures if you are paying your bills on time?

  • Credit utilization: Measures how much credit you are utilizing of your overall credit lines

  • Balances: Measures how much you owe

  • Age of credit: Measures the average age of credit.

  • Kinds of credit: Measures the various kinds of credit you have from revolving accounts to credit installment debt.

  • Recent inquiries: Measures how many times a creditor checks your credit.

Your credit score measures all of these factors and comes up with a score. If you pay off a mortgage, you could affect negatively the following:

Age of Credit - you are probably removing the oldest item

Kinds of Credit - you potentially disrupt the mixture of types of accounts

Recent Inquiry - you would see a small deduction from this one


The bottom line is that creditors look at a 760, just like an 810 - excellent credit score. The good news is that your credit score will adjust and start to come back up over time.

Bob

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