The Surprising Impact of Paying Off My House on My Credit Score

Paying off a mortgage can cause a temporary drop in credit score, even for those with a perfect 850 FICO score. This is because the credit-scoring algorithm considers having a low installment-loan-balance-to-loan-amount ratio less risky than having no active installment loans at all. However, as long as positive credit behaviors such as on-time payments and manageable debt levels are maintained, the score should rebound over time. Achieving a perfect credit score is not necessary for favorable credit terms, as lenders typically have different tiers based on credit ranges.