Author Topic: Keeping mortgage to boost credit score?  (Read 1551 times)

simplefi

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Keeping mortgage to boost credit score?
« on: July 15, 2013, 01:06:02 PM »
Here is something I have been wondering lately. 

I have one year left on a rental property mortgage which I was intending to just pay off now.  In the meantime I am renting but would eventually like to buy a house (although not exactly sure when). 

Since the mortgage is my only installment loan, would paying it off affect my credit score enough in such a way that it would impact the rate I would get when applying for another mortgage?  Would it make sense it keep the old mortgage (and pay a small amount of interest) in case I do buy within the next year?  For all of you that are mortgage free, feel free to chime in!


nawhite

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Re: Keeping mortgage to boost credit score?
« Reply #1 on: July 15, 2013, 01:14:04 PM »
Keeping the mortgage has both positive an negative impacts on your credit score but both can be inconsequential based on what other accounts you have.

On the one side, keeping the mortgage increases both the number and average age of your open accounts. This a good thing on your credit reports. However, if you already have a number of other open accounts (credit cards, other loans, etc) and the average age of those accounts is relatively old (older average account age is also good) then it won't really matter that you are closing the mortgage.

On the other side, the mortgage increase the amount of debt you currently have and would negatively influence your debt to income ratio when you apply for a new loan. If you only have 1 year left on the loan it probably doesn't matter much though.

fiveoclockshadow

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Re: Keeping mortgage to boost credit score?
« Reply #2 on: July 15, 2013, 01:15:05 PM »
Like most things "it depends" is probably the correct answer.  Keep in mind that your mortgage once closed will still be on your credit report for quite some time.

We rented for two years between houses once.  We had no installment loans for that period.  We did have credit cards, all never carrying a balance.  We had no trouble getting a mortgage in the depths of the financial calamity with credit scores close to or over 800.  Apparently, at least for us, no installment loans had no perceptible affect on our credit score. 

More stupidly on a later refinance I noticed I got docked a few points for "high revolving credit balance".  There was a large charge on the credit card for that month and credit was pulled before the balance was paid as it is every month.  Despite the fact this was still less than 15% of our total revolving credit available some points were knocked.

So I'd never make any claims to understand what exactly will affect the score - and it is in the industries best interest to keep us in the dark lest everyone game their score.