Author Topic: What happens to my credit when I pay off all my debt  (Read 7098 times)

Sulame66

  • 5 O'Clock Shadow
  • *
  • Posts: 55
What happens to my credit when I pay off all my debt
« on: June 15, 2017, 01:00:33 PM »
Currently I'm at 805, and have about $10k in debt to go. Timeline to have it all paid off is 15 weeks. The only thing on the horizon at that point would be a home at some point between 1 and 15 years, depending on how much I save and how much I spend

With that said, what happens to my credit after all these monthly payments go away and now I'm not charging or using it

Additionally, am I supposed to start picking up some cash back cards and use those and pay them down each month to get rewards ... because I've only had one credit card, going on 16 years now

Thanks

NathanP

  • Stubble
  • **
  • Posts: 137
Re: What happens to my credit when I pay off all my debt
« Reply #1 on: June 15, 2017, 01:10:48 PM »
If you use credit cards and then pay in full, your score will continue to be high. A big portion of your credit score is account longevity, and utilization rate.

Working against you (to some extent) is that you won't have a mortgage or student loans to "improve" your account mix. I have only had a mortgage + credit cards for quite a while and my score is 800+. I know that there are other members with no mortgage or other debt who also have high scores.

Syonyk

  • Magnum Stache
  • ******
  • Posts: 4610
    • Syonyk's Project Blog
Re: What happens to my credit when I pay off all my debt
« Reply #2 on: June 15, 2017, 01:11:29 PM »
Nothing.  It'll stay high.

And it's not a number to obsess over.  Anything about about 750 gets you into the top tier for borrowing, but that's not something you intend to do much of in the future, right? ;)

RyanAtTanagra

  • Handlebar Stache
  • *****
  • Posts: 1316
  • Location: Sierra Mountains
Re: What happens to my credit when I pay off all my debt
« Reply #3 on: June 15, 2017, 03:03:10 PM »
The only thing that may effect you negatively is lack of installment accounts (mortgage, car loan, student loan, etc).  I haven't had any loans in long enough that I get dinged specifically for that on my credit score.  But it's still 795, so whatever.  Don't worry about your credit score too much (or at all, imo).  Pay your credit cards off every month and it'll be more than high enough for anything you need it for.

MilesTeg

  • Handlebar Stache
  • *****
  • Posts: 1363
Re: What happens to my credit when I pay off all my debt
« Reply #4 on: June 15, 2017, 03:23:32 PM »
Currently I'm at 805, and have about $10k in debt to go. Timeline to have it all paid off is 15 weeks. The only thing on the horizon at that point would be a home at some point between 1 and 15 years, depending on how much I save and how much I spend

With that said, what happens to my credit after all these monthly payments go away and now I'm not charging or using it

Additionally, am I supposed to start picking up some cash back cards and use those and pay them down each month to get rewards ... because I've only had one credit card, going on 16 years now

Thanks

Depends on what kind of debt the $10k is. If it's an installment/secured (say, a car loan) your score might go down a bit because having just a credit card isn't seen as good compared to having a credit card + mortgage/car loan (their rules, not mine). If it's $10k of credit card or other unsecured/revolving debt, your score will go up. Neither is going to make a huge impact on your score. Also, know that you have many different scores (used for different purposes) and places like creditkarma/etc. only give you the basic score. Bottom line: don't worry about it, just keep paying your bills on time and using your credit card wisely (USE it, but pay off each month). Avoid collections, late payments, etc. The rest doesn't matter much.

VolcanicArts

  • Stubble
  • **
  • Posts: 129
  • Location: San Antonio
Re: What happens to my credit when I pay off all my debt
« Reply #5 on: June 15, 2017, 11:08:03 PM »
Just to chime in I never really had a credit card my early adult life. I lived debt free, saved a large portion of my income, and paid off any debt that arose including about 150k in student loans several years back. I owned my cars and never financed anything. I thought that paying off over six figures of debt would look great when I decided to buy a house about a year ago, going in on the purchase with a relative. I found out they would not put my name on the mortgage as I had never had to use credit, this is despite the fact that I had a significant amount of assets and could have purchased the house in full. The entire thing seemed really silly to me, as it did not have common sense associated with it. I realize the credit system is really just kind of rigged as there are really no alternatives to it if you want to take out a loan from the bank. Sure, I could have just paid for the house and own it outright, but that would have been the worse choice as my yield on investments was much higher than what the house would have retuned, and I do not plan on selling it. To make a long story short, I now have a starter credit card and just buy basic stuff with it and keep it paid off. The way I look at it is even though I am paying more for goods using it, it does give me a timed loan per say should I ever need one without having to dip into savings or investments. I really just wish there was an alternate system to obtain a loan besides credit, maybe there is and I just don't know about it.

lizzzi

  • Handlebar Stache
  • *****
  • Posts: 2150
Re: What happens to my credit when I pay off all my debt
« Reply #6 on: June 16, 2017, 04:43:47 AM »
My credit score runs close to 800 all the time, and I have not had any loans or financed anything for years. I use my credit cards all the time, but pay them in full every month. The last time I bought a house was 2013, and I paid cash. There was no problem completing the transaction. The last time I bought a car (new, from a dealer) was in 2011, and while they preferred and encouraged me to finance it, I paid cash, and again, no problem. I don't recall that my credit score dropped much during those times. I was worried when I needed to rent an apartment last year, that the fact I never buy anything on credit and have no debt might be an issue...but they approved my application within 24 hours. My credit score was in the high 700s if I remember right--not 800, but close.

Lis

  • Pencil Stache
  • ****
  • Posts: 774
Re: What happens to my credit when I pay off all my debt
« Reply #7 on: June 16, 2017, 11:07:23 AM »
My credit score dipped ~20-30 points when I finished paying off my student loans, but I think it bounced back within a few months. If it's installment (car/mortgage/student loan), it'll probably dip a bit. If it's consumer ($10k debt on a credit card), I think it would jump up quite a bit.

(The following is according to Mint)

The largest factor contributing to your credit score is your credit card usage - what's the ratio of your use to your total credit limit. This doesn't necessarily mean your balance by the end of your statement, by the way, a credit card can report your usage whenever they want. So if you have $10k on your credit card and a total limit of $20k, that's a 50% usage. Mint recommends keeping it under 20%. So if that $10k goes away and you're left with $0 (or, more realistically, >10%), your credit score shoots up.

Another factor is the number of accounts open in your name. If it's a car/student/mortgage loan that'll close when you finish payment, you'll lose an account in your name, which could decrease your score. This is a less important factor than usage, but does still count. (Apparently, 22+ accounts is excellent, 13-21 is good, 6-12 is not bad, and 0-5 is poor.)

One more factor is the age of credit. This is the average age of all of your accounts. So if you've had this loan for a long time and it closes, your average age will decrease, which will knock your score a bit. However, if it's relatively recent, getting rid of it could increase your average age, increasing it.

Syonyk

  • Magnum Stache
  • ******
  • Posts: 4610
    • Syonyk's Project Blog
Re: What happens to my credit when I pay off all my debt
« Reply #8 on: June 16, 2017, 11:38:08 AM »
Yeah, I lost over 100 points on my credit score when I basically maxed out a bunch of cards (mostly 0%, but... still).  The joys of buying a home without a mortgage.

It's bounced back.

Really, though, "get cash back cards with low fees, set up automatic payment to pay in full every month, keep enough buffer in your checking account to cover it, and you're fine."  It's seriously not worth obsessing over.

Bicycle_B

  • Handlebar Stache
  • *****
  • Posts: 1809
  • Mustachian-ish in Live Music Capital of the World
Re: What happens to my credit when I pay off all my debt
« Reply #9 on: June 16, 2017, 02:44:37 PM »
Currently I'm at 805, and have about $10k in debt to go. Timeline to have it all paid off is 15 weeks. The only thing on the horizon at that point would be a home at some point between 1 and 15 years, depending on how much I save and how much I spend

With that said, what happens to my credit after all these monthly payments go away and now I'm not charging or using it

Additionally, am I supposed to start picking up some cash back cards and use those and pay them down each month to get rewards ... because I've only had one credit card, going on 16 years now


Thanks

That's up to you, Sulame66.  Picking up reward cards can give very good return on a small time investment.  Not doing it is safe, but doing it is beneficial. 

I got a couple of travel rewards cards last winter and they're great.  I'm taking three plane trips this year for less than $100 cash, just using the airline miles, and will still have over $1500 of airfare ready to go.  I applied today for a new cash back card too, which has a $150 signup bonus.  Free money/benefits for a 20 minute application, and using the card to transact expenses that I would have anyway. 

MMM article on cash back cards:
http://www.mrmoneymustache.com/credit-cards/

A large outside company with comparison engines for numerous cards:
http://www.bankrate.com/

MMM article on travel rewards:
http://www.mrmoneymustache.com/2014/10/13/credit-card-churning-for-mustachians-or-sucka-consumers/

Another website analyzing cards from travel rewards perspective:
https://thepointsguy.com/

PizzaSteve

  • Pencil Stache
  • ****
  • Posts: 501
Re: What happens to my credit when I pay off all my debt
« Reply #10 on: June 16, 2017, 04:18:01 PM »
A better question is why you would care anymore.  Short of wanting a good rate on a home loan, debt free should empower one less worry (credit score).

lizzzi

  • Handlebar Stache
  • *****
  • Posts: 2150
Re: What happens to my credit when I pay off all my debt
« Reply #11 on: June 16, 2017, 04:43:20 PM »
Good point, Pizza Steve. If you're debt-free and have a stash,  who cares about credit scores?

pbkmaine

  • Walrus Stache
  • *******
  • Posts: 8927
  • Age: 67
  • Location: The Villages, Florida
Re: What happens to my credit when I pay off all my debt
« Reply #12 on: June 16, 2017, 04:52:00 PM »
No mortgage, no debt of any kind, huge amount of credit available, pay off credit cards each month, score 815.

MrsPete

  • Magnum Stache
  • ******
  • Posts: 3505
Re: What happens to my credit when I pay off all my debt
« Reply #13 on: June 18, 2017, 07:01:07 PM »
It may go down.  Mine did.  Here's the story -- just a funny little tale: 

Last time we financed a car -- it was probably 20 years ago -- the salesman called someone else over to the computer and the two agreed, "We don't see that often".  They said we had not just a good credit score, but literally a perfect score. 

Then we paid off our house.  And our score dropped.  Why?  Because we decreased the variety of credit we had.  The credit people consider paying a mortgage to be good, whereas I bet you're with me in thinking of a paid-off house as a better thing. 

Regardless, your credit score should never be a real goal.  Your credit score just measures whether you pay your bills on time; it doesn't measure whether you pay minimum balances or pay in full.  It doesn't measure whether you have savings in the bank.  It doesn't measure AT ALL whether you're financially secure. 

SC93

  • Pencil Stache
  • ****
  • Posts: 605
Re: What happens to my credit when I pay off all my debt
« Reply #14 on: June 18, 2017, 11:36:40 PM »
Just to chime in I never really had a credit card my early adult life. I lived debt free, saved a large portion of my income, and paid off any debt that arose including about 150k in student loans several years back. I owned my cars and never financed anything. I thought that paying off over six figures of debt would look great when I decided to buy a house about a year ago, going in on the purchase with a relative. I found out they would not put my name on the mortgage as I had never had to use credit, this is despite the fact that I had a significant amount of assets and could have purchased the house in full. The entire thing seemed really silly to me, as it did not have common sense associated with it. I realize the credit system is really just kind of rigged as there are really no alternatives to it if you want to take out a loan from the bank. Sure, I could have just paid for the house and own it outright, but that would have been the worse choice as my yield on investments was much higher than what the house would have retuned, and I do not plan on selling it. To make a long story short, I now have a starter credit card and just buy basic stuff with it and keep it paid off. The way I look at it is even though I am paying more for goods using it, it does give me a timed loan per say should I ever need one without having to dip into savings or investments. I really just wish there was an alternate system to obtain a loan besides credit, maybe there is and I just don't know about it.

Easy answer for this one... IF getting a loan is what you choose to do. You get it manually underwritten. That means you need to find a loan officer with a brain. I know that may be hard to do, but it can be done. I've never had credit. Sometimes it causes a little problem but that means I don't need what ever it is that they won't let me do.

I like having my wallet so full of cash that there's no room for any kind of card except my business card & Kroger card. :)

MilesTeg

  • Handlebar Stache
  • *****
  • Posts: 1363
Re: What happens to my credit when I pay off all my debt
« Reply #15 on: June 22, 2017, 10:32:53 AM »
A better question is why you would care anymore.  Short of wanting a good rate on a home loan, debt free should empower one less worry (credit score).

Your credit score, unfortunately, affects more than your ability to borrow money. It's used for other things like

* insurance rates,
* renting a home
* utility companies
* telecom companies

and anything else where your financial "health" may be a factor to some company.

secondcor521

  • Walrus Stache
  • *******
  • Posts: 5503
  • Age: 54
  • Location: Boise, Idaho
  • Big cattle, no hat.
    • Age of Eon - Overwatch player videos
Re: What happens to my credit when I pay off all my debt
« Reply #16 on: June 22, 2017, 10:47:05 AM »
FYI, I am pretty sure that mortgages stay on your credit report and affect your credit score long after you've paid them off.

I paid off my house several years ago, and I still have four (paid off with zero balance) mortgages showing on my credit report.  The earliest seems to be my first mortgage on the house I live in now, which I opened in 2006 and paid off in early 2008.

Since my mortgages before that do not report, I'm guessing that they fall off after 10 years of no activity.

(CreditKarma says 832/823 for me.)

RyanAtTanagra

  • Handlebar Stache
  • *****
  • Posts: 1316
  • Location: Sierra Mountains
Re: What happens to my credit when I pay off all my debt
« Reply #17 on: June 22, 2017, 11:14:40 AM »
A better question is why you would care anymore.  Short of wanting a good rate on a home loan, debt free should empower one less worry (credit score).

Your credit score, unfortunately, affects more than your ability to borrow money. It's used for other things like

* insurance rates,
* renting a home
* utility companies
* telecom companies

and anything else where your financial "health" may be a factor to some company.

But if you behave even a little like a mustachian (pay off your credit cards, don't take on stupid debt, pay your bills on time), your credit score is MORE than enough for all those things.  There is zero reason to even think about it.

neil

  • Stubble
  • **
  • Posts: 215
Re: What happens to my credit when I pay off all my debt
« Reply #18 on: June 22, 2017, 12:35:36 PM »
You literally pay other people money for an exceptional credit score.  What for?  Regardless of the use of scores as a crutch for other things, the only thing an 800 score will be needed for are exceptional rates, but the amount lended to you will still be based on either collateral or your proven ability to make income.  Someone in FIRE might not be able to prove those other things either.

Regular use of a credit card with enough of a limit to keep utilization down should get your score in the 700s.  That should be good enough for most ridiculous uses of a credit score.  They would simply cut out too much of the market from their business to make enough money.

If I ever run into income verification rules (or someone wants to charge above market for not having a pristine score, for some reason) don't get my business.  I know I have ability to pay, and I am willing to bend a little bit to prove it.  But I will use my position as a customer to simply reject people or businesses who give me trouble.  I don't have to buy any specific product or live in a specific place to be happy with my life.

MilesTeg

  • Handlebar Stache
  • *****
  • Posts: 1363
Re: What happens to my credit when I pay off all my debt
« Reply #19 on: June 22, 2017, 01:43:30 PM »
A better question is why you would care anymore.  Short of wanting a good rate on a home loan, debt free should empower one less worry (credit score).

Your credit score, unfortunately, affects more than your ability to borrow money. It's used for other things like

* insurance rates please cite a reference. Ins rates are heavily state regulated and this use may be illegal 
* renting a home why am i renting when i just paid off my mortgage  (point of thread)
* utility companies Pretty much only to determine if a deposit is required or not...even poverty level incomes can't be denied access to utilities 
* telecom companies who cares, VOIP better/cheaper and so competitive i doubt credit impacts price or access one bit...again heavily regulated to forbit service denial on income or credit criteria, so always a deposit option exists

and anything else where your financial "health" may be a factor to some company.
Per note above, misuse of my credit score just loses my business to an entity with more sensible practices.  We can't change the world unless we live our values and I would rather miss out on some services offered than pander to misuse of credit scores pushed by the predators.

Yes our score has dropped due to no loans and some card churning, but worst case outcome is some denied credit cards, that i can see.  Still i understand how keeping a card or two active for a long duration isnt a bad idea, to keep from a score from dropping too low.

Hah wow, quite the aggressive response to someone just politely relaying some basic facts. Not interested in getting into an argument over basic, easily referenced facts. Though I will reply to one thing to clarify:

"Your score is used to measure your creditworthiness—the likelihood that you’ll pay back a loan or credit-card debt. But you might not know that car insurers are also rifling through your credit files to do something completely different: to predict the odds that you’ll file a claim. And if they think that your credit isn’t up to their highest standard, they will charge you more, even if you have never had an accident, our price data show."

http://www.consumerreports.org/cro/car-insurance/credit-scores-affect-auto-insurance-rates/index.htm

Have a nice day.

MilesTeg

  • Handlebar Stache
  • *****
  • Posts: 1363
Re: What happens to my credit when I pay off all my debt
« Reply #20 on: June 22, 2017, 01:59:43 PM »
A better question is why you would care anymore.  Short of wanting a good rate on a home loan, debt free should empower one less worry (credit score).

Your credit score, unfortunately, affects more than your ability to borrow money. It's used for other things like

* insurance rates,
* renting a home
* utility companies
* telecom companies

and anything else where your financial "health" may be a factor to some company.

Quote
But if you behave even a little like a mustachian (pay off your credit cards, don't take on stupid debt, pay your bills on time), your credit score is MORE than enough for all those things.  There is zero reason to even think about it.

I don't disagree that it's not worth fussing over the details above say 750, I'm only responding to the (paraphrased) question "why should I care about my credit score if I'm not going to borrow money?"

redbird

  • Pencil Stache
  • ****
  • Posts: 546
Re: What happens to my credit when I pay off all my debt
« Reply #21 on: June 22, 2017, 02:35:43 PM »
I haven't had any debt for many years. My credit score is still over 800.

(Yes, we have a mortgage, for those who have seen my references to buying a house. The actual loan is only under DH's name since he was still working at the time. Bank didn't care about my history since I was FIRE and didn't have active income. His credit + income was plenty for them. House deed is under both names though.)

Altons Bobs

  • Bristles
  • ***
  • Posts: 339
Re: What happens to my credit when I pay off all my debt
« Reply #22 on: June 22, 2017, 03:30:47 PM »
Nothing is going to happen to your credit, you don't need it anyway, so don't worry about it.

Syonyk

  • Magnum Stache
  • ******
  • Posts: 4610
    • Syonyk's Project Blog
Re: What happens to my credit when I pay off all my debt
« Reply #23 on: June 22, 2017, 04:57:26 PM »
But if you behave even a little like a mustachian (pay off your credit cards, don't take on stupid debt, pay your bills on time), your credit score is MORE than enough for all those things.  There is zero reason to even think about it.

Seriously.  Anything above about 750 is "Wow, you are excellent at paying back money, here's a lot of money!" territory.

My credit score "tanked" from over 800 to around 650 by opening a bunch of new credit lines and maxing them out within a few months (buying a house without a mortgage when you intend to have a mortgage is... interesting, and I'm not sure I recommend it).  I couldn't tell the difference, though if I'd gone new car shopping, I might have noticed (which wasn't a problem I was likely to have).  And it bounced back once I got all that paid off.

 

Wow, a phone plan for fifteen bucks!