My credit score dropped from well above average to well below average after I paid off my mortgage. As well as bizarre, it’s yet another example of how our lives are affected by arbitrary decisions made by faceless corporate giants.
PB London
It is indeed bizarre but true that paying off a loan can spook the algorithms that calculate our creditworthiness.
Financial companies like their customers to have a good mix of credit accounts to their name, from credit cards to loans, to show they can manage different types of debt. They also like evidence of a long, reliable credit history, so if your 25-year mortgage was your oldest open credit account, that history is suddenly shortened when it is terminated. The blip is likely to be brief and inconsequential, however.
“When someone applies for credit, it doesn’t matter too much that their ‘score’ has dipped,” says John Webb from the credit reference agency Experian. “Lenders make their own calculations based on affordability and, if you no longer have monthly outgoing mortgage payments, you will have more disposable income, which is considered a positive.”
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