Paying on a mortgage is something no one is exactly excited to do. However, what can be exciting is to finally pay off that mortgage fully. If this is you right now or has been, congratulations! That is a big accomplishment to celebrate.
But, before you pay off that mortgage, there are some things to take into consideration, like how it will affect your credit score. If this is something that worries you or you have questions on, don’t fret! Here’s what you need to know.
The Connection Between Your Mortgage and Credit Score
There really isn’t anything like a home mortgage to help or hurt your credit score. An important thing to know is that home mortgage loans are reported to all three credit bureaus on a monthly basis. Simply put, your mortgage can really increase your credit score as long as you’re making consistent payments on time.
When you pay your mortgage off in full, it gets reported back to the loan servicer which ceases any on-going credit benefits. Paying off your mortgage in full doesn’t directly hurt your credit score per say. Just make sure the rest of your accounts are paid in a timely fashion.
How Credit Plays a Role
Let’s say you’ve paid off your mortgage and still have derogatory items (collections or late payments) these things will continue to get reported for about seven years or so. This could potentially hurt your credit score down the road. A mortgage payment holds a great deal of power, and without it your other credit accounts take that main spot. If possible, we recommend paying off the mortgage when you’ve done everything else to maintain a healthy credit score. This means that when the mortgage is paid off, your credit score is at a lesser risk for a negative impact.
As we all know, there are different types of loans. These types of loans; conventional, VA, FHA and USDA do not affect your credit score. All of these available loan programs report the same way to credit agencies. However, there are some exceptions – if you’ve had a loan modification in the past, you’ll most likely see that your servicer is going to report “restructured mortgage” which could ultimately hurt your score. It could also come off as making you less creditworthy for future mortgages.
If you are prepaying your mortgage or thinking about it in an attempt to pay it off sooner, you’ll want to continue doing so, especially if you have 10 years or more left on your term. If you’re in a situation where your credit needs remediation, 10 years is still enough time to get your other credits in order.
How Big Events Affect Your Credit
It’s extremely important to know these four events and what they can do to your credit score:
- Short Sale
- Deed In Lieu
Any of these four events can remain on your credit report and affect your credit score. If you have a mortgage and the rest of your credit history is not so great, it’s important to remember that making consistent and on time payments can help offset other poor credit factors.
Do You Have More Credit Score Related Questions? Let Mid America Mortgage Help!
We understand that navigating your credit score with a mortgage can be a bit confusing, so we want to ensure we make the process as easy as can be. Check out our other credit score related blogs like, How Many Credit Cards Are Bad For Your Credit Score and What Do Retail Credit Cards Do To Your Credit Score?
Always feel free to give us a call at (573)-875-1100 and we’ll be happy to discuss any mortgage related questions you have!