Paying off a mortgage - impact on credit score?

[RN2B]

Hello!

My ex-husband and I own a house together, and I talked him into buying me out. It's been on the market since Nov 09 and is not selling (no suprises there, with the market).

He's refinancing soon - probably late this week or early next week.

How will this impact my credit score? After the mortgage is paid off, the only debt I will have is my car (I owe about $8k) and a small credit card ($450). That's it. I am not planning on buying another house for a couple of years. I'll be renting a really cool apartment in the same city.

I'm reading mixed things about paying off mortgages...some say it can lower your credit score, and others say it doesn't impact it much at all. I know that the impact it has on my debt-to-income ratio is going to be fantastic.

My current Experian score is 699. So close to 700! LOL I've worked very hard to get it there...it was in the high 500s about a year ago due to loads of divorce debt.

I assume I am better off waiting to apply for the apartment until after my ex refinances the house, due to the great improvement in my debt-to-income ratio. (we still owe around $160k on the house). Am I correct here? Also, once he refinances and my name is no longer on the mortgage, should I apply for another credit card in order to increase my score? The one credit card I have has a $500 limit.

Thanks so much!

[jpg7n16]

Have you ever tried: CreditKarma.com ?

It's a free site that has a "score impact" calculator. Usually the score they give is off (in some cases over, some under), but the impact calculator works fine just the same.

I would think that short term, it'd help your score, long term hurt it.


I would never get a credit card just to attempt to improve my credit score. A better option would be to request a higher line of credit from your current card. (longer credit history, same debt utilization) Applying for a new card may even hurt your score. (The CreditKarma calculator will show you the impact)


I also think you place way too much importance on your credit score. Better to take that enthusiasm about your credit score, and direct it at your net worth instead.

[snshijuptr]

Originally Posted by jpg7n16

A better option would be to request a higher line of credit from your current card. (longer credit history, same debt utilization) Applying for a new card may even hurt your score.
I also think you place way too much importance on your credit score. Better to take that enthusiasm about your credit score, and direct it at your net worth instead.

I just had to agree with jpg on these. If you need a higher credit score, then ask for a higher limit on your credit card. I would add to this that you should go apply for the apartment whenever you need it. At most they will deny you, but more likely they will either ask for more money upfront or ask for more documentation of income/divorce.

Finally remember that most companies get the FICO from all three credit agencies then choose the score in the middle. Having only 1 score from 1 company isn't all that telling. I know my own range in the past has been 20-30 points between the highest and lowest score.

[FrugalDad123]

Originally Posted by jpg7n16

I also think you place way too much importance on your credit score. Better to take that enthusiasm about your credit score, and direct it at your net worth instead.

This reminds me of one of the habits in one of my favorite books, "Seven Habits of Highly Effective People" by Stephen Covey.

[bjl584]

My Mom and my Stepdad paid off their mortgage a few years back, and my Stepdad told me that when he looked at his score afterwards it had in fact been dinged by about 20 points or so. I'm not sure why that would happen. It's since come back up, and he was never all that worried about it in the first place. His score was in the 800's.

[RN2B]

Thank you all!

I'm not going to obsess over it. I wish we didn't have to play this "credit game", you know? I like being almost debt-free. I recently started a business and can't wait to get things rolling so I can pay off my car loan. The thing is, I want to buy another house in a year or so so I have to play the game....

[bjl584]

Originally Posted by RN2B

Thank you all!

I'm not going to obsess over it. I wish we didn't have to play this "credit game", you know? I like being almost debt-free. I recently started a business and can't wait to get things rolling so I can pay off my car loan. The thing is, I want to buy another house in a year or so so I have to play the game....

I wouldn't worry about it too much. If you are nearly debt free and you pay your bills in a timely manner, then your credit score is going to be high. After a certain point there is no real advantage to having a higher score. (A person with a 770 score that applies for a loan is going to get the same interest rate and terms as a person with a 800 score that applies for the same loan.) It becomes meaningless and futile to chase after a "perfect" score. There is no real advantage.

[wincrasher]

a score around 700 will get you an apt no problem. if they check your report, they are looking for defaults. they are more interested in proof of your income.

Closing or maturing fixed accounts should improve your score. Believe it or not, revolving accounts have the biggest impact on your score. Too many fixed accounts drag you down because they are seen as inflexible - meaning that you have a fixed payment each month, eating up your cash flow.

Opening a new account also dings your score, at least for a few months. Much better to get an increase on an existing account. But don't ask unless you are sure you will get it. A rejection hurts your score. Same if you apply for a new account and are rejected.