Why did my credit score drop after paying off my house? This question is about Credit Scores

Your credit score may have dropped after paying off your house because your credit mix or the average age of your accounts was negatively affected. While paying off your mortgage positively contributes to your payment history and eliminates your interest costs, it also reduces your credit mix and lowers the average age of your accounts. Impact of Paying Off Your Mortgage on Your Credit Score Positive payment history:Payment history is the most important factor contributing to your credit score. On-time payments will positively impact your score over time. Also, accounts closed in good standing remain on your credit report for up to 10 years, although the effect will lessen over time. Eliminates debt and interest cost: Once the loan is paid off, you no longer have any debt or interest obligations from your mortgage, improving your overall financial profile. The additional funds will allow you to build up your savings and ensure you can service your other debt and bills. Reduced credit mix: A mortgage is considered an installment account versus a credit card or line of credit which is a revolving account. It’s ideal to have a mix of both kinds of debt. If your mortgage is your only installment debt obligation, when it’s paid off, your credit score will likely fall. Lower average age of accounts: The longer open accounts in good standing are listed on your credit report, the better. Closing accounts will lower the average age of your accounts and, as a result, negatively impact your credit score. You can check your credit score and get personalized credit-improvement tips for free here at WalletHub.

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Why did my credit score drop after paying off my house?

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This question is about Credit Scores

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Lauren Smith, WalletHub Staff Writer

@laurenellesmith • 11/30/22 This answer was first published on 11/30/22. For the most current information about a financial product, you should always check and confirm accuracy with the offering financial institution. Editorial and user-generated content is not provided, reviewed or endorsed by any company.

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Your credit score may have dropped after paying off your house because your credit mix or the average age of your accounts was negatively affected. While paying off your mortgage positively contributes to your payment history and eliminates your interest costs, it also reduces your credit mix and lowers the average age of your accounts.

Impact of Paying Off Your Mortgage on Your Credit Score

Positive payment history:Payment history is the most important factor contributing to your credit score. On-time payments will positively impact your score over time. Also, accounts closed in good standing remain on your credit report for up to 10 years, although the effect will lessen over time.
Eliminates debt and interest cost: Once the loan is paid off, you no longer have any debt or interest obligations from your mortgage, improving your overall financial profile. The additional funds will allow you to build up your savings and ensure you can service your other debt and bills.
Reduced credit mix: A mortgage is considered an installment account versus a credit card or line of credit which is a revolving account. It’s ideal to have a mix of both kinds of debt. If your mortgage is your only installment debt obligation, when it’s paid off, your credit score will likely fall.
Lower average age of accounts: The longer open accounts in good standing are listed on your credit report, the better. Closing accounts will lower the average age of your accounts and, as a result, negatively impact your credit score.

You can check your credit score and get personalized credit-improvement tips for free here at WalletHub.

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