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Does your credit score drop without a mortgage

jabberwocky

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Does anyone know if your credit score drops when a mortgage is paid off?

I just got an alert from Transunion saying my score dropped from 894 to 845 (we use a 900 point scale in Canada for some reason).

The only change I can see is that we no longer have a mortgage reporting. We just transferred our mortgage to a new bank, the old one is showing as paid/closed, but the new one isn’t showing up yet - probably because it hasn’t been reported by the new bank.

50 points seems to be a pretty steep drop for having less debt. Has my creditworthiness gone down that much?
 

geekette

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It's a crapshoot. There is no rhyme nor reason to why mine has been bouncing around this year. I am not doing anything new nor extraordinary.

I expect to gain points on a satisfied loan. I would be unhappy losing points in a refi, etc., but overall it doesn't make a lot of difference to my life. My best guess in your situation is that the ratio of debt outstanding vs debt available has changed, with debt available number shrinking while outstanding is same.

The more likely possibility, however, is that you got dinged on credit inquiries. The whole system is whack. What is the point to having a credit history to evaluate if you get dinged for it being evaluated?? I look forward to living my life in cash form only and let my credit rating drop to nothing from not using it...
 

DaveNV

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My credit score went up when they paid off my mortgage in my recent sale/new purchase. I expect it will drop again when the new mortgage registers. But as @geekette says, credit inquiries probably caused the score to drop in between. I'd give it a month or two to settle out and see if it doesn't stabilize. To my mind, a credit score is only valuable when seeking new credit. If you aren't doing that, over a few months it should seek its new level.

Dave
 
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JudyH

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No, we were 850 forever without mortgages. DH dropped one of his many credit cards and it dropped a bit.
 

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Ours didn't drop after we paid off our mortgage about 5 years ago.

Kurt
 

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That's nuts. You are incredibly credit worthy, until you decide to not use it ...
It has to do with the ratio of used credit to available credit. When you close an account, the available credit (denominator) decreases, which then increases the ratio. That is why if you are really concerned about you credit score, you should never close an account, just quit using it. Crazy, but if you know the rules, you can game the system.

Kurt
 

x3 skier

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Having a score in the 800’s means you get the best rate IMNSHO. Mine fluctuates in that area and it never has affected my rates that I can tell.

Cheers
 

geekette

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It has to do with the ratio of used credit to available credit. When you close an account, the available credit (denominator) decreases, which then increases the ratio. That is why if you are really concerned about you credit score, you should never close an account, just quit using it. Crazy, but if you know the rules, you can game the system.

Kurt
right, I mentioned that above. But at 850, it's ridiculous. Still, algorithms do what algorithms are designed to do .... you are right that the key is using that static process to your benefit.
 

Janann

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Do you have any car loans or other installment debt? If you don't, then your ability to make payments of a fixed amount for a long period of time is (from a technical standpoint) unknown. Lenders want to know that you can make payments long term, not just small credit card payments here and there. It sounds harsh, but it is the way that the credit scoring models are set up.
 

jabberwocky

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My credit score went up when they paid off my mortgage in my recent sale/new purchase. I expect it will drop again when the new mortgage registers. But as @geekette says, credit inquiries probably caused the score to drop in between. I'd give it a month or two to settle out and see if it doesn't stabilize. To my mind, a credit score is only valuable when seeking new credit. If you aren't doing that, over a few months it should seek its new level.

Dave
No new inquiries with Transunion since September 2019. I checked Equifax and bank did a pull there for the mortgage in July, but nothing else. Only three inquiries in the past two years total. Not planning on needing credit anytime soon - just hurts my pride more than anything:(. I just really have the credit score monitor there as a point of interest and as protection against identity theft. The score has always seemed to bounce between 880 and 896 for the past two years since I've had it. 50 points was a big drop!

Do you have any car loans or other installment debt? If you don't, then your ability to make payments of a fixed amount for a long period of time is (from a technical standpoint) unknown. Lenders want to know that you can make payments long term, not just small credit card payments here and there. It sounds harsh, but it is the way that the credit scoring models are set up.
I have one installment loan for our car which was a 0% deal. Only 11 payments to go on that. Credit history goes back 23 years with 0 late payments or other derogatories. Only real debt besides the credit cards (paid off monthly) is a line of credit I took out last fall for our kitchen reno.

It has to do with the ratio of used credit to available credit. When you close an account, the available credit (denominator) decreases, which then increases the ratio. That is why if you are really concerned about you credit score, you should never close an account, just quit using it. Crazy, but if you know the rules, you can game the system.

Kurt
This would make sense - we had about 43% of our mortgage paid off. I guess that took a big chunk of what was showing as available credit off the table. I'll see what happens when the new mortgage gets reported.
 

Janann

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I just got an alert from Transunion saying my score dropped from 894 to 845 (we use a 900 point scale in Canada for some reason).
You can rest assured that because you started with such a high score, this "drop" is not going to impact your ability to get the best rates and terms from a lender. Don't worry about it.

I work in the lending industry in the U.S. with a scale that tops out at 850. A 50 point drop from 850 to 800 would have zero impact on getting the best deal.
 

DaveNV

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Did you maybe have a credit card account close because of non-use? Sometimes I’ve had card accounts closed by the company because I hadn’t used the card.

Dave
 

Brett

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You can rest assured that because you started with such a high score, this "drop" is not going to impact your ability to get the best rates and terms from a lender. Don't worry about it.

I work in the lending industry in the U.S. with a scale that tops out at 850. A 50 point drop from 850 to 800 would have zero impact on getting the best deal.
I agree. I also worked for banks. - in a another life a long time ago ;)
 

Talent312

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We paid off our mortgages, but our scores are still stellar becuz we have...
a car loan, CC accounts as old as the hills (a long time), and only use ~5%.

Besides reducing available credit (increasing debt to credit ratio), closing
an account can also reduce types of credit and length of credit history.

.



.
 

jabberwocky

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Did you maybe have a credit card account close because of non-use? Sometimes I’ve had card accounts closed by the company because I hadn’t used the card.

Dave
No. All are still open. One of my hotel cards hasn’t had a balance for several months (for obvious reasons) - but it is still active on the report. Oh well, I’ll just live with this and see how long it takes to go back up. No immediate needs for financing fortunately.
 

wackymother

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We paid off our mortgage a few years ago and the main thing we saw was that we were turned down for a $5000 auto loan on a used car about two years later because we didn't have "recent installment payments." (Our credit score had dropped a bit but was still hovering around 780-800 at the time.) But that car dealer was extremely sketchy anyway.

A 50-point drop because you paid off your mortgage seems very odd. Can you call the credit reporting agency? Maybe there is some other problem.
 

jabberwocky

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A 50-point drop because you paid off your mortgage seems very odd. Can you call the credit reporting agency? Maybe there is some other problem.
Probably not worth my time to follow-up with them. I did pull the actual report, the only thing really different has been the mortgage now showing as paid. I'll see if it changes when the new mortgage gets reported.
 
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