Credit score dropped due to paying mortgage off!

kep79

Hi all,

I recently sold my house and paid the mortgage off. We are living with family while we look for the perfect house for us. I am keeping an eye on my credit score/accounts (I know the score is just arbitrary) so that we are in the best position when we apply for our next mortgage.

We have also paid off our credit cards in full, but that is not showing yet on our files. However, the mortgage has just shown as settled, causing the credit score to plummet. Seems counterintuitive to me, and I am assuming that, once the credit cards show as settled it will jump back up, and that lenders will not view a paid off mortgage as a negative wen applying for the next mortgage?

Thanks, I just need a little reassurance :-)

sinizterguy

Have you had an address change ? And are no longer on the Electoral Roll ?

Experian, and other credit reference agencies do not lend money or offer you mortgages. So as you said, the score isn't worth much.

When you look for a new mortgage, you will be assessed on what is visible on your credit record and not a meaning number the agency assigned to you.

Tixy

I doubt paying off a mortgage would be seen as a negative to most potential lenders. As you know how the score changes often isn't indicative of how a potential lender would assess the risk of lending to you.

Moving house can be an indicator of an increased risk. Have you or a lender updated your address on your credit file?

kep79

The addresses etc are still consistent with the electoral roll, so I am expecting that to cause another drop.... I have registered at my new address but I know it will take some time to show due to the time of year.

I was just really surprised. Experian had previously shown the mortgage as a positive factor due to it being open for over 12 months, but I didn't expect less debt to equal a worse score.

Having said that, I know that the score is just an internal algorithm based on their interpretation of factors, and that lenders have their own risk models. So I know the score means nothing. I was just keeping an eye on our files so that I feel confident about our ability to lend the kind of amount that we want to for the next house.

Thanks for your responses.

Experian_company_representative

Hi Kep79,

Congratulations on paying off your mortgage!

For most people their mortgage account will be one of their longer running accounts, from what you have said the most likely reason for the drop will be due to the average age of your accounts reducing now that the mortgage account is settled. Lenders generally like to see established accounts on the report.
If you would like me to take a closer look at your report, email your details to [EMAIL="uksocialsupport@experian.com"]uksocialsupport@experian.com[/EMAIL] and we will be happy to. Regards
Neil

stator

Having a mortgage makes you less likely to default and declare bankruptcy because you've got more to lose!
Your credit report won't show that you own your house outright
Make sure you keep your credit cards for spending when you pay them off in full. Having no credit at all would make your credit 'score' drop even further.

JKSandy

I wouldnt worry about it. I think when you come to applying for a new mortgage having one paid off will trump the "score".

boo_star

stator wrote: »

Having a mortgage makes you less likely to default and declare bankruptcy because you've got more to lose!
Your credit report won't show that you own your house outright
Make sure you keep your credit cards for spending when you pay them off in full. Having no credit at all would make your credit 'score' drop even further.

But the OP is looking to apply for another mortgage, not a loan, so the debt would be secured.

I've made lending decisions for a bank in the past (not as an underwriter though) and I'd never see a settled mortgage account for someone looking for a new mortgage account as a negative, quite the opposite.

It's really just another reason why these scores are useless.

RMS2

kep79 wrote: »

I was just really surprised.

You've gone from being a home owner/mortgagee with a reasonable address length time, to a renter at a brand new rental property.


You haven't paid off the debt, you've got out of the market and taken a step back. If you had paid off your mortgage and owned your house outright, then that would have been a different situation.


You might not like what I'm saying, but where as you were fairly fixed before (homeowners don't tend to be able to disappear overnight), you can now move at will and maybe even a moment's notice.

MEM62

kep79 wrote: »

I am keeping an eye on my credit score/accounts (I know the score is just arbitrary)

Then stop worrying about it. Lenders will look at the data on your credit report and make their own decision based on the information thereon and their own lending criterion.
There is absolutely no point in loosing sleep over a meaningless number.

somethingcorporate

As you've admitted the score is totally arbitrary and is a total scam to charge people lots of money to take notice of what it is. If it meant anything to Experian they would be a money lender.

My totally free of charge score for you is two bob and a big apple so don't sweat it.

Seen examples on here of recently bankrupts with 999 scores. Explain that Experian!