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Credit Score and Paying off Loans

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Mummichog

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14 mins ago, tomkaz said:

I have the Barclays JetBlue card and they provide unlimited access to my score. 

 

We recently knocked off some accumulated credit card charges and my score jumped nearly 80 points, low 700s to high 700s. Just not sure how long the lag was.  Still below the 800+ before we got the new house's mortgage but that’s to be expected. 

 

Having your score drop when you paid off the debt may not be so strange however. I believe the ratings are trying to gauge your ability to service debt, less than your total debt outstanding.

 

Thus, they do not treat credit card and other short-term loans (i.e. cars, boats) as they do mortgages. The scores are trying to assess your ability to pay, to service your debts, as a sign to future creditors of your current debt load potential. This places greater emphasis on the variable component of your debt service load.

 

Given the nature of credit cards (charge-repay-charge again), the ratings see the total credit card load and ability to pay as more relevant than servicing a fixed-payment mortgage. This is my thinking, I do not know this to be absolutely true. 

 

But if the above is correct, the total amount of your mortgage outstanding is not as relevant as long as the cash flow requirements, the monthly payments, do not change. So absent a refi, making a bulk excess payment to reduce your mortgage principal, does not change your month-to-month mortgage payment. 

 

As mentioned, a couple of cycles should tell you the ultimate impact. Good luck.

Thus, why I asked if it was a HELOC or term product.

 

Paying off/down a credit card balance you have carried for a long time will adversely impact your score in the short term as that was a positive trade line in your report.

 

You have to use credit to build credit. They can only judge you based on what is reported.   If nothing is reported, guess what?

 

I think the key point is that he said he was rebuilding from previous lows.  Credit reporting agencies are fickle bitches.  If you have previous issues and are not in a top tier league, any change will impact your score more so than a guy who hasn't dipped lower than mid to high 7's.  The fool me once theory...

They are apt to think the credit junkie fell off the good credit wagon.

"all of jase's posts are valid." -Otter

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9 hours ago, Kings over Queens said:

No debt is better than high credit score, and when you have little to no debt, even better.

This.

 

If you are a kid, have a car note and a house note, nothing else, pay off the car asap.  Business credit is more important, if you need it

“My happiness is not the means to any end. It is the end. It is its own goal. It is its own purpose.”

 

Ayn Rand

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18 mins ago, JaseB said:

Thus, why I asked if it was a HELOC or term product.

 

Paying off/down a credit card balance you have carried for a long time will adversely impact your score in the short term as that was a positive trade line in your report.

 

You have to use credit to build credit. They can only judge you based on what is reported.   If nothing is reported, guess what?

 

I think the key point is that he said he was rebuilding from previous lows.  Credit reporting agencies are fickle bitches.  If you have previous issues and are not in a top tier league, any change will impact your score more so than a guy who hasn't dipped lower than mid to high 7's.  The fool me once theory...

They are apt to think the credit junkie fell off the good credit wagon.

You responded while I was typing. 

 

The algos they use are difficult to predict. For the year before we applied for our current mortgage, I subscribed to the Experian premium service which monitors your score, allows you unlimited updates and allows you to play "what if?” with your debts. That calculator would give you a rough idea of how paying or this or paying off that would impact your score. 

 

I should have noted, when we paid down that credit card, we **** down that account, closed it outright. That reduction in access, or total debt potential, might have impacted my score as well. We still have other cards, but that one was the airline related, was one to get 60,000 points for a past trip and we won’t be flying on United anytime soon. 

“No nation in history has survived once its borders were destroyed, once its citizenship was rendered no different from mere residence, and once its neighbors with impunity undermined its sovereignty.”

- Victor Davis Hanson 

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40 mins ago, JaseB said:

 

What kind of mortgage?  Fixed rate term or line of credit?

 

No other pay downs, closures, etc. On your report?

 

What was your score prior to the pay down?

We had an 80/20 mortgage.  Both variable, but the 20 part of the 80/20 was wildly variable and quite high.   The slang term was "interest only" mortgage.  Should have re-financed years ago, but the wife and I never saw eye-to-eye on that.  She avoided that kind of stuff like the plague.  I paid off that 20 portion of the mortgage.

 

I have about $216,000 left on my mortgage for a house worth about $330,000.  No other debt at all except one credit card, in which I never owe more than about $100-150 on.

 

My score went from 661 to 622.  It got down to around 500 or less back when my wife was still alive and she was paying all the bills.  She stopped paying all the bills and I didn't know it.  She missed 6 mortgage payments in a row.   That will do it.

 

The good news is that my mortgage guy gets about 50 points higher when he checks it.  So, I guess, to him I went from a 720 to a 670.  When he checks it, it's a hard check, so I want to wait until things start climbing back and I'm ready to re-fi before he checks again.

 

Five years ago, I bought my wife a brand new Infiniti with no money down, no trade-in, no nothing.  Just a credit check and a handshake.  Oh, how the mighty have fallen.  :D

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47 mins ago, Mummichog said:

We had an 80/20 mortgage.  Both variable, but the 20 part of the 80/20 was wildly variable and quite high.   The slang term was "interest only" mortgage.  Should have re-financed years ago, but the wife and I never saw eye-to-eye on that.  She avoided that kind of stuff like the plague.  I paid off that 20 portion of the mortgage.

 

I have about $216,000 left on my mortgage for a house worth about $330,000.  No other debt at all except one credit card, in which I never owe more than about $100-150 on.

 

My score went from 661 to 622.  It got down to around 500 or less back when my wife was still alive and she was paying all the bills.  She stopped paying all the bills and I didn't know it.  She missed 6 mortgage payments in a row.   That will do it.

 

The good news is that my mortgage guy gets about 50 points higher when he checks it.  So, I guess, to him I went from a 720 to a 670.  When he checks it, it's a hard check, so I want to wait until things start climbing back and I'm ready to re-fi before he checks again.

 

Five years ago, I bought my wife a brand new Infiniti with no money down, no trade-in, no nothing.  Just a credit check and a handshake.  Oh, how the mighty have fallen.  :D

The 20% portion was a HELOC,  home equity line of credit.  It is a revolving debt that has a rate tied to the WSJP.  Or Prime for short.  Prime roughly follows the Fed Funds Rate which has been steadily rising for several years.

 

As far as the credit agencies, your HELOC looks and is treated the same as a CC account. See my and Tom's explanation as to why that negatively hits your score.  And yes, your score was somewhat sub par even at 660.  Not to knock you, just a further explanation of why it hit you so hard.  Youve got as good of an excuse as I've ever seen.  That's life.  In any case, good on you for paying it off.  A couple 3 or 4 months and you should rebound.

 

And you're not just talking to some guy on the internet.:laugh:

"all of jase's posts are valid." -Otter

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2 hours ago, Mummichog said:

It’s a free thing with my credit card.  They update your

score every couple of weeks and you can check it on your phone.  Not supposed to touch your credit score.  I think it’s only one. 

My credit cards offer the same credit score updates every month, but I'm not sure they are the final word... I just bought a car in February, my credit cards had my score high 700s, but the dealership checked my score and it was 810...?... beats me 

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2 hours ago, Mummichog said:

It’s a free thing with my credit card.  They update your

score every couple of weeks and you can check it on your phone.  Not supposed to touch your credit score.  I think it’s only one. 

If it's Chase then the score they're giving you is off.  According to Chase my score was 100 points below what it actually was when the bank ran my credit when we moved last year.

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2 hours ago, Mummichog said:

It’s a free thing with my credit card.  They update your

score every couple of weeks and you can check it on your phone.  Not supposed to touch your credit score.  I think it’s only one. 

If it's Chase then the score they're giving you is off.  According to Chase my score was 100 points below what it actually was when the bank ran my credit when we moved last year.   

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12 hours ago, Mummichog said:

So, I put $50,000 into my mortgage and my credit score went down by 39 points.    My debt to income ratio decreased, the equity in my home increased, yet I lose almost 40 points on my credit score.  I find this peculiar.  Although the mortgage company said it could happen.  Shows I can handle less debt, I guess?  

It's rigged. They are punishing you for decreasing your interest payments.

I love when we make way past the breakwater at first light and head out, there's nothing better, the whole rest of the world just melts away for me.

(*edited - member formerly known as 'windknot')

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28 mins ago, jettyjockey18 said:

My credit cards offer the same credit score updates every month, but I'm not sure they are the final word... I just bought a car in February, my credit cards had my score high 700s, but the dealership checked my score and it was 810...?... beats me 

There are 3 different agencies and they each use their own independent algorithms and an individual's score varies across all three.  Plus, not all creditors report to all three agencies. 

"all of jase's posts are valid." -Otter

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12 hours ago, CATCHnRELEASE said:

Have credit cards running, and pay on time. my score is like 875, and I do not own a dime.

:howdy:

Good for you! Now go stick a penny up your ass. 

I love when we make way past the breakwater at first light and head out, there's nothing better, the whole rest of the world just melts away for me.

(*edited - member formerly known as 'windknot')

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