After paying off my mortgage, my credit score went from well above average to below average. In addition to being bizarre, this is yet another example of how arbitrary decisions made by faceless giant corporations affect our lives.
P.B. London
It’s strange, but it’s true that paying off a loan can scare the algorithms that calculate our creditworthiness.
Financial companies like to have a variety of credit accounts in their customers’ names to show them that they can manage different types of debt, from credit cards to loans. They also like a long and reliable credit history. So if your 25-year mortgage is your oldest open credit account, that history will suddenly be shortened upon termination. But those moments are likely to be brief and inconsequential.
“When someone applies for credit, it doesn’t really matter if their ‘score’ goes down,” says John Webb of credit reference agency Experian. “Lenders make their own calculations based on affordability, and having no more monthly mortgage payments means having more disposable income is considered a positive.”
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