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