Credit score after becoming debt free?

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mptfan
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Credit score after becoming debt free?

Post by mptfan » Wed Jul 11, 2018 5:27 pm

I am proud to say that I am now debt free, completely debt free including no mortgage and no debt of any kind. I can't really talk about it with most people for the fear of coming across as bragging and creating resentment, this is about the only place I can talk about it.

Here is my question...now that I have no debts and no debt payments or installment loans of any kind, no mortgage, no car payments, no student loan payments, no HELOC payments, nothing...how will that affect my credit score going forward? I do have two credit cards, one is an American Express Blue card and the other is the Fidelity 2% signature visa card, and I use both of them regularly and I pay the balance in full on both cards every month, and I know that they still count as an open credit line for purposes of calculating my credit score, but I am curious if my credit score will be adversely impacted because I no longer have any other types of debt or installment payments of any kind other than credit cards.

I don't really care that much about my credit score anymore, but I anticipate that I may want to get a mortgage at some point in the future if I want to buy a different house, so I want to know how my current situation may affect my credit score in the future. Thanks.

Horsefly
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Re: Credit score after becoming debt free?

Post by Horsefly » Wed Jul 11, 2018 5:36 pm

Your credit score will take a hit. Ours went down about 30 points for a couple of months when we paid off our mortgage. We have several credit cards though, and that may have helped get our score back quickly.

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Pajamas
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Re: Credit score after becoming debt free?

Post by Pajamas » Wed Jul 11, 2018 5:40 pm

A paid-off mortgage should stay on your credit record and may help your score for at least ten years.

https://blog.equifax.com/credit/does-pa ... dit-score/

I say "should" and "may" because I haven't had anything active but a few credit cards on my credit report for years but have an excellent credit score. An auto loan I had a few decades ago through a credit union does not appear and my mortgage is shown as paid/closed/never late even though it has been paid off for more than ten years. Some inactive credit cards also show as paid/closed/never late or just as closed/never late after more than ten years.

So I think your credit score will be fine as anything bad drops off even if you have limited current activity. After a certain level there is nothing practical to gain by having a higher score except for bragging rights on internet forums.

Jordan4FI
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Re: Credit score after becoming debt free?

Post by Jordan4FI » Wed Jul 11, 2018 5:41 pm

I have not had any "debt" for over 4 years and before that was just an auto loan for 5 years, just 2 CC's now.. and use them very lightly.. never had an impact on my score, and still well above 700... both my cards are with Navy Federal.

NotWhoYouThink
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Re: Credit score after becoming debt free?

Post by NotWhoYouThink » Wed Jul 11, 2018 5:46 pm

Mine is back above 800 these days. It dropped a little when we charged an expensive vacation, then applied for a new card. But paying off the mortgage didn't cause any lasting drop.

drawpoker
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Re: Credit score after becoming debt free?

Post by drawpoker » Wed Jul 11, 2018 6:16 pm

mptfan wrote:
Wed Jul 11, 2018 5:27 pm
.....for purposes of calculating my credit score, but I am curious if my credit score will be adversely impacted because I no longer have any other types of debt or installment payments of any kind other than credit cards......

I don't really care that much about my credit score anymore ......
When I paid off my HELOC mine dropped from 840 to 827. Just like you, that left only credit cards, no auto loan or other installment debt. (am a senior citizen, active accounts like AmEx, Sears, go back like 39, 40 years)

You should continue to care about your credit score, though. In many states, it is legal for the insurers to use credit scores as a factor in the rates you pay for both auto and homeowners. You should check to see if your state of residence is one of them.

Jack FFR1846
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Re: Credit score after becoming debt free?

Post by Jack FFR1846 » Wed Jul 11, 2018 6:24 pm

I have credit score analysis every month from my credit union. As my mortgage has been paid off for many years, and I have no other loans, my monthly score always says "no installment loan" under things hurting my credit score.
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Shackleton
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Re: Credit score after becoming debt free?

Post by Shackleton » Wed Jul 11, 2018 6:26 pm

We have had no debt for a year and only have two credit cards. Last time I checked our scores were 815ish.
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Murr
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Re: Credit score after becoming debt free?

Post by Murr » Wed Jul 11, 2018 6:30 pm

we were in the same position as you, zero debt and paid off the mortgage in Jan. credit score dropped about 30 points the month after but ramped back up to where is was by may.

drawpoker
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Re: Credit score after becoming debt free?

Post by drawpoker » Wed Jul 11, 2018 6:31 pm

Jack FFR1846 wrote:
Wed Jul 11, 2018 6:24 pm
I have credit score analysis every month from my credit union. As my mortgage has been paid off for many years, and I have no other loans, my monthly score always says "no installment loan" under things hurting my credit score.
Yes, I see similar all the time. I read somewhere that 35% of the score is based on length of time since accounts opened and 25% is based on having that "mix" of credit cards, mortgage loans, installment debt like car or student loans.
Actually having no late payments for many years is only worth like 10% or 15% in their eyes. :shock:

MikeG62
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Re: Credit score after becoming debt free?

Post by MikeG62 » Wed Jul 11, 2018 6:31 pm

mptfan wrote:
Wed Jul 11, 2018 5:27 pm
I am proud to say that I am now debt free, completely debt free including no mortgage and no debt of any kind.

Here is my question...now that I have no debts and no debt payments or installment loans of any kind, no mortgage, no car payments, no student loan payments, no HELOC payments, nothing...how will that affect my credit score going forward?
After I paid off the mortgage (somewhere around 2014) and became debt free my credit score dropped. I was historically in the 830-840 range when I was working and had a mortgage. For the last several years my score has been in the low 800’s (I’ve even seen it dip into the high 700’s). Quite frankly, it’s annoying. My CC total debt capacity is around $300K and the most my CC balance would ever be (prior statement balance + curent months charges) might amount to 10% of that. All CC’s are paid in full on the due date.

I did lease a car last July. Thought that obligation might raise my score, but it had no noticeable difference.

My brother who has a mortgage, auto lease and loan obligations and often buys things on interest free financing has a credit score north of 840. Maybe he has shown over decades the ability to service all this debt? Yet somehow the fact that I paid off my mortgage early and never missed a payment on any form of debt does not match up to that in the eyes of the credit scoring gods.
Last edited by MikeG62 on Thu Jul 26, 2018 4:21 pm, edited 1 time in total.
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Katietsu
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Re: Credit score after becoming debt free?

Post by Katietsu » Wed Jul 11, 2018 6:33 pm

We had a car loan for a few months to take advantage of a financing offer. Fico score supplied complimentary by a credit card company went up 30 points. Dropped back down after paying off the car. Sort of nuts but it is the way the model works.

However, with a long history and no late pays, the lowered score would still be high enough to qualify for the best rate mortgage, insurance, etc.

noco-hawkeye
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Re: Credit score after becoming debt free?

Post by noco-hawkeye » Wed Jul 11, 2018 6:36 pm

First of all - congrats! Feels great, and month after month it's a bit liberating to have one less thing hanging over you. :sharebeer

My score maybe took a small ding or 10-20 points, but I've kept it north of 800. Our heloc is also still open (but not used). If you are still making regular payments (like monthly credit card usage) and have a high amount of available credit (and low usage), I'd think you will be fine.

averagedude
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Re: Credit score after becoming debt free?

Post by averagedude » Wed Jul 11, 2018 6:45 pm

I personally don't care about my credit score but my situation is different than yours. I will probably never try to obtain credit in the future unless it is for investment purposes only. Of course, i am in a comfort zone and i don't see that happening either. Having a good credit score does have significant advantages other than obtaining credit. Some circumstances are getting good insurance rates and could potentially help you get a job as some employers look at your credit score.These are ways of improving your credit score.
1. PAY YOUR BILLS ON TIME. This is a no brainer and the right thing to do.
2. Keep a low credit utilization score. If you have $10000 credit limit, make sure you keep under the 25% ($2500) of the monthly credit you have available.
3. Try to keep 2 or 3 credit cards. You don't have to use them, but some credit issuers may require you to use them a couple times a year to keep them. Keep them and pay them off in full when you get the statement.
My opinion is you don't need to get a perfect credit score (850). Getting in the 700,s or above, having an income that can support the loan you are trying to obtain, and having a good positive net worth is the key to obtaining credit and having a bright financial future.

JoeRetire
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Re: Credit score after becoming debt free?

Post by JoeRetire » Wed Jul 11, 2018 6:56 pm

mptfan wrote:
Wed Jul 11, 2018 5:27 pm
I am proud to say that I am now debt free, completely debt free including no mortgage and no debt of any kind.
Congratulations! It looks like this means a lot to you and is truly quite an accomplishment. Give yourself a nice pat on the back and enjoy the feeling!
I anticipate that I may want to get a mortgage at some point in the future if I want to buy a different house.
Why would you choose to go into debt again?
Last edited by JoeRetire on Wed Jul 11, 2018 7:43 pm, edited 2 times in total.

TravelGeek
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Re: Credit score after becoming debt free?

Post by TravelGeek » Wed Jul 11, 2018 7:00 pm

Jack FFR1846 wrote:
Wed Jul 11, 2018 6:24 pm
I have credit score analysis every month from my credit union. As my mortgage has been paid off for many years, and I have no other loans, my monthly score always says "no installment loan" under things hurting my credit score.
I get my scores for free from various credit cards and they all seem to be within about 10 points from each other.

I also see the message about “no installment loan” hurting my score (820+). So I got a car loan (*). The score seems to have gone up by a few points, but the message is still there.

(*) I got a 0% 72 month loan even though I was prepared to pay cash. There goes the plan to retire without debt ;)

drawpoker
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Re: Credit score after becoming debt free?

Post by drawpoker » Wed Jul 11, 2018 7:05 pm

TravelGeek wrote:
Wed Jul 11, 2018 7:00 pm
..... also see the message about “no installment loan” hurting my score (820+). So I got a car loan (*). The score seems to have gone up by a few points, but the message is still there.

(*) I got a 0% 72 month loan....
Don't worry, that message will soon be replaced with a new one: "balance to loan ratio too high". Then the score will go right back down again by a few points.

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Re: Credit score after becoming debt free?

Post by jimb_fromATL » Wed Jul 11, 2018 7:05 pm

I never knew my credit score until a few years or so ago when Discover card started showing it for free. We haven't had a mortgage for more than 20 years, and the last time we had any other loan was 1980. Our FICO score hovers around 815. Not sure why it goes up and down a few points, since we don't apply for credit and don't carry balances on the two credit cards that we use as a substitute for cash from month to month.

jimb

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goingup
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Re: Credit score after becoming debt free?

Post by goingup » Wed Jul 11, 2018 7:31 pm

Horsefly wrote:
Wed Jul 11, 2018 5:36 pm
Your credit score will take a hit. Ours went down about 30 points for a couple of months when we paid off our mortgage. We have several credit cards though, and that may have helped get our score back quickly.
Yes, our credit score just dropped 21 points after paying off the mortgage in May. Guess we're now less credit-worthy? It's important to me because we'll be buying 2 new autos soon and may/may not finance them depending on dealer promotions.

mhalley
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Re: Credit score after becoming debt free?

Post by mhalley » Wed Jul 11, 2018 8:14 pm

Your credit score will not be as high if you have no outstanding debt other than credit cards that you pay off monthly. However, it will still be high enough to get the top tier rewards for having a high credit score, ie. lower insurance, low mortgage rate, eligible for zero percent car loans etc. I would not take out loans just to get a credit score a few points higher. A difference which makes no difference is no difference at all. (William James)
From Edmunds:
How To Qualify
Zero-percent loans are typically reserved for buyers with excellent credit. The fine print on automaker websites often says things like "for qualified buyers" or "based on Tier One credit." The language doesn't really spell out what that means in terms of FICO scores. And the range itself can vary from one automaker to another, so we suggest calling the dealership to see what the requirements are.

Just what is "Tier One" credit, for example? It's a FICO of 690-719, according to one Washington state Toyota dealership that posted its credit tiers online. But that's just one brand and one dealership's numbers. According to credit services company Experian, 752 is the average credit score associated with loans that have an APR of less than 1 percent. As a general rule however, if your FICO score is above 700, you should be able to get a zero-percent loan.

If your score is slightly lower, zero-percent offers are still worth looking into. There have been cases of people getting approved because of a solid history of making payments on time and loyalty to a car brand — despite having a lower credit score.
The fico needed for the lowest mortgage is slightly higher. From Doughroller:
What credit score do you need to get a low rate mortgage?
It used to be that a score of about 720 would yield the lowest mortgage rates available. Today, the best rates kick in with a FICO score of 760. And interest rates go up significantly as your credit score drops.

mptfan
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Re: Credit score after becoming debt free?

Post by mptfan » Wed Jul 11, 2018 8:55 pm

JoeRetire wrote:
Wed Jul 11, 2018 6:56 pm
Why would you choose to go into debt again?
To buy a house in the event I do not have enough readily available cash to pay for it without incurring tax penalties.

Spirit Rider
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Re: Credit score after becoming debt free?

Post by Spirit Rider » Wed Jul 11, 2018 9:16 pm

The impact of no mortgage or installment loans will vary with age of your credit file, oldest and average age of revolving credit lines.

In other words, no mortgage or installment loans in your 20s or 30s will have a larger impact than if you are in your 60s or 70s. If the latter it will have minimal impact.

JoeRetire
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Re: Credit score after becoming debt free?

Post by JoeRetire » Thu Jul 12, 2018 6:00 am

mptfan wrote:
Wed Jul 11, 2018 8:55 pm
JoeRetire wrote:
Wed Jul 11, 2018 6:56 pm
Why would you choose to go into debt again?
To buy a house in the event I do not have enough readily available cash to pay for it without incurring tax penalties.
Hmm, okay.

So you worked hard and used up your source of readily available cash to become totally debt free and are very proud of it.
And now you would choose to become indebted yet again because you may not have enough readily available cash to avoid tax penalties?

I sometimes wonder if some folks aren't so interested in being debt free as they are in the process of becoming debt free.

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Re: Credit score after becoming debt free?

Post by Mr.BB » Thu Jul 12, 2018 6:11 am

We are debt free including our home. After we paid off our house, our credit score dropped about 30 points. We are still in the mid 800's (depending on whose scale you use) so it really has not affected anything. But well worth it not having a mortgage payment.
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Re: Credit score after becoming debt free?

Post by oldcomputerguy » Thu Jul 12, 2018 6:21 am

We too are debt free for a few years (having paid off our mortgage about three years ago), and like the OP use a Fidelity 2% Visa card for expenses. Last time I looked (and I really see no reason even to care at this point), our credit score was around 830. So not a big hit from the mortgage payoff, and it came back up. I wonder if it helped when we took out the Delta AmEx last year.
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Re: Credit score after becoming debt free?

Post by knpstr » Thu Jul 12, 2018 7:09 am

It will be fine if you are still using credit cards. It hits all the major points of scoring: credit history, age of account, utilization %, etc...

My parents have been debt-free for many years, but still use credit cards they pay in full each month. Their score is in 800s
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Spirit Rider
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Re: Credit score after becoming debt free?

Post by Spirit Rider » Thu Jul 12, 2018 8:59 am

JoeRetire wrote:
Thu Jul 12, 2018 6:00 am
mptfan wrote:
Wed Jul 11, 2018 8:55 pm
JoeRetire wrote:
Wed Jul 11, 2018 6:56 pm
Why would you choose to go into debt again?
To buy a house in the event I do not have enough readily available cash to pay for it without incurring tax penalties.
So you worked hard and used up your source of readily available cash to become totally debt free and are very proud of it.
And now you would choose to become indebted yet again because you may not have enough readily available cash to avoid tax penalties?

I sometimes wonder if some folks aren't so interested in being debt free as they are in the process of becoming debt free.
Sometimes, I wonder how yet again we have another mantra, this one of being "Debt Free" at all costs despite of its clear Behavioral Finance failing. It seems as though it has become a Dave Ramsey-esce badge of honor instead of good money management

Debt is but a financial tool, neither inherently good or evil. Sometimes debt is used because it is the only way to achieve goals. Sometimes debt is used because it represents a clear financial advantage. Managing your tax liabilities is one of the latter.

Even if someone is structurally debt free (no mortgage, installment loans or credit card balances subject to interest charges). It is good money management e.g. to use a low-interest HELOC short-term, "0% interest on purchase" credit card offers, low interest car loan, etc... to avoid paying 15% capital gains taxes. It might even make sense purely to manage your MAGI for ACA subsidies or IRMAA premiums.

You are perfectly free to stick to your mantra, but reasonable people can disagree and I most definitely do. Being debt free is a noble goal, but the the efficient use of credit is also a financially prudent path.

mptfan
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Re: Credit score after becoming debt free?

Post by mptfan » Thu Jul 12, 2018 9:36 am

JoeRetire wrote:
Thu Jul 12, 2018 6:00 am
Hmm, okay.

So you worked hard and used up your source of readily available cash to become totally debt free and are very proud of it.
And now you would choose to become indebted yet again because you may not have enough readily available cash to avoid tax penalties?

I sometimes wonder if some folks aren't so interested in being debt free as they are in the process of becoming debt free.
I think that's unfair. I am as interested in being debt free as I was in becoming debt free, but I may choose to become indebted yet again for a short period of time because I may not have enough readily available cash to pay for a house without incurring tax penalties, and I would have to wait until I sell my current house to pay off or almost payoff the new mortgage. It would be more of a bridge loan type scenario, and I would expect to be debt free again soon after purchasing the new house and after I had the time to sell my old house to payoff or almost payoff the new mortgage, and then get it paid off in a relatively short period of time, but I may need to get a mortgage for a relatively short period of time to purchase the new house since it is much easier to buy a new house without contingencies and to be able to not rush the process of having to purchase the new house at the same time as I sell my old house. These are practical realities associated with buying and selling houses.

So to answer your question, yes, I may choose to become indebted yet again for a short period of time because I do not have enough readily available cash to avoid incurring tax penalties. I think it would be unwise to withdraw funds from tax deferred accounts earmarked for retirement and pay tax penalties to buy a house, and I think that most Bogleheads would agree with that.
Last edited by mptfan on Thu Jul 12, 2018 9:47 am, edited 2 times in total.

JBTX
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Re: Credit score after becoming debt free?

Post by JBTX » Thu Jul 12, 2018 9:42 am

Spirit Rider wrote:
Thu Jul 12, 2018 8:59 am
JoeRetire wrote:
Thu Jul 12, 2018 6:00 am
mptfan wrote:
Wed Jul 11, 2018 8:55 pm
JoeRetire wrote:
Wed Jul 11, 2018 6:56 pm
Why would you choose to go into debt again?
To buy a house in the event I do not have enough readily available cash to pay for it without incurring tax penalties.
So you worked hard and used up your source of readily available cash to become totally debt free and are very proud of it.
And now you would choose to become indebted yet again because you may not have enough readily available cash to avoid tax penalties?

I sometimes wonder if some folks aren't so interested in being debt free as they are in the process of becoming debt free.
Sometimes, I wonder how yet again we have another mantra, this one of being "Debt Free" at all costs despite of its clear Behavioral Finance failing. It seems as though it has become a Dave Ramsey-esce badge of honor instead of good money management

Debt is but a financial tool, neither inherently good or evil. Sometimes debt is used because it is the only way to achieve goals. Sometimes debt is used because it represents a clear financial advantage. Managing your tax liabilities is one of the latter.

Even if someone is structurally debt free (no mortgage, installment loans or credit card balances subject to interest charges). It is good money management e.g. to use a low-interest HELOC short-term, "0% interest on purchase" credit card offers, low interest car loan, etc... to avoid paying 15% capital gains taxes. It might even make sense purely to manage your MAGI for ACA subsidies or IRMAA premiums.

You are perfectly free to stick to your mantra, but reasonable people can disagree and I most definitely do. Being debt free is a noble goal, but the the efficient use of credit is also a financially prudent path.
This x 1000

mptfan
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Re: Credit score after becoming debt free?

Post by mptfan » Thu Jul 12, 2018 9:45 am

Spirit Rider, I'm not sure if you are arguing in support of my position or against?

JoeRetire
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Re: Credit score after becoming debt free?

Post by JoeRetire » Thu Jul 12, 2018 10:35 am

Spirit Rider wrote:
Thu Jul 12, 2018 8:59 am
Sometimes, I wonder how yet again we have another mantra, this one of being "Debt Free" at all costs despite of its clear Behavioral Finance failing.
Preferring to adhere to mantras appears to be human nature.
You are perfectly free to stick to your mantra, but reasonable people can disagree and I most definitely do. Being debt free is a noble goal, but the the efficient use of credit is also a financially prudent path.
I agree with you. This particular mantra is not one I've ever adhered to.

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UpsetRaptor
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Re: Credit score after becoming debt free?

Post by UpsetRaptor » Thu Jul 12, 2018 11:12 am

It doesn't really matter as long as you're above 750 or so, you still get the best rates if you decide to incur debt again.

Some people look at their credit score as a higher-is-always-better badge of honor type thing, but once you're high 700s+, you shouldn't look at it that way. Having/paying debt can often boost your credit score higher, though that's not necessarily always smart.

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Earl Lemongrab
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Re: Credit score after becoming debt free?

Post by Earl Lemongrab » Thu Jul 12, 2018 12:28 pm

Always remember that you don't have one credit score. You have many. My experience when my home loan ran out was that my Transunion 08 score as reported by Discover and BoA dropped significantly and almost immediately, from the high 840s to around 815.

On the other hand, my Experian 08 score as reported by Amex showed almost no difference, but never was as high as the TU score. It was in the 820s before and after.

Why the difference? I dunno.
This week's fortune cookie: "Your financial life will be secure and beneficial." So I got that going for me, which is nice.

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Earl Lemongrab
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Re: Credit score after becoming debt free?

Post by Earl Lemongrab » Thu Jul 12, 2018 12:37 pm

JoeRetire wrote:
Wed Jul 11, 2018 6:56 pm
I anticipate that I may want to get a mortgage at some point in the future if I want to buy a different house.
Why would you choose to go into debt again?
Why not? I use debt as a financial tool. If I were to buy a new house, I'd at least look at loans and run some numbers. I try not to get emotional about such things.
This week's fortune cookie: "Your financial life will be secure and beneficial." So I got that going for me, which is nice.

JoeRetire
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Re: Credit score after becoming debt free?

Post by JoeRetire » Thu Jul 12, 2018 12:46 pm

Earl Lemongrab wrote:
Thu Jul 12, 2018 12:37 pm
JoeRetire wrote:
Wed Jul 11, 2018 6:56 pm
I anticipate that I may want to get a mortgage at some point in the future if I want to buy a different house.
Why would you choose to go into debt again?
Why not? I use debt as a financial tool. If I were to buy a new house, I'd at least look at loans and run some numbers. I try not to get emotional about such things.
Because you aren't the OP. Because you haven't posted about how proud you are of having become completely debt free. Because, unlike the OP, you (like me) look at debt as a useful tool rather than something to be avoided and whose absence should be celebrated.

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Phineas J. Whoopee
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Re: Credit score after becoming debt free?

Post by Phineas J. Whoopee » Thu Jul 12, 2018 4:39 pm

As others have written paid-off mortgages and HELOCs stay on your reports for ten years.

Not so long ago I had an entirely-predicted (by me) small reduction in credit score, as my loan fell off after the ten years.

It still left me above 800. Generally anything above about 740, some sources say 760, puts you into the most desirable borrower category: prime.

PJW

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Re: Credit score after becoming debt free?

Post by MnD » Thu Jul 12, 2018 7:37 pm

Spirit Rider wrote:
Wed Jul 11, 2018 9:16 pm
The impact of no mortgage or installment loans will vary with age of your credit file, oldest and average age of revolving credit lines.
In other words, no mortgage or installment loans in your 20s or 30s will have a larger impact than if you are in your 60s or 70s. If the latter it will have minimal impact.
Age mid-50's and now 18 months past paying off the loan on the money pit which was only debt.
It had no discernible impact and as in the past, we are way above where any change would any have any real-world impacts.
We close long-held held accounts and open new ones whenever it is in our best financial interest and that pattern has had no impact either.
I speculate that credit files that experience big drops when mundane things happen also have other issues.

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Earl Lemongrab
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Re: Credit score after becoming debt free?

Post by Earl Lemongrab » Thu Jul 12, 2018 11:34 pm

Loans might stay on your record, but that doesn't mean that an inactive one has the same effect as an active one. As I mentioned, my Transunion 08 score took an immediate hit once the loan completed.
This week's fortune cookie: "Your financial life will be secure and beneficial." So I got that going for me, which is nice.

drawpoker
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Re: Credit score after becoming debt free?

Post by drawpoker » Thu Jul 12, 2018 11:44 pm

^ This

Exactly my experience as well

MikeG62
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Re: Credit score after becoming debt free?

Post by MikeG62 » Fri Jul 13, 2018 6:54 am

UpsetRaptor wrote:
Thu Jul 12, 2018 11:12 am
It doesn't really matter as long as you're above 750 or so, you still get the best rates if you decide to incur debt again.
This is true. However, when one sees their credit score drift down over time from 840 to 820 to 810 to 800 to 790 (as I have personally experienced - despite being debt free, never missing a payment and with a CC utilization rate under 10%), one wonders where the bottom is? Might it eventually one day drop below 750 and impact loan/lease rates in the future? That is my concern and what I find frustrating about credit scores.
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djpeteski
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Re: Credit score after becoming debt free?

Post by djpeteski » Fri Jul 13, 2018 7:27 am

Shackleton wrote:
Wed Jul 11, 2018 6:26 pm
We have had no debt for a year and only have two credit cards. Last time I checked our scores were 815ish.
Congratulations on being debt free. It is wonderful. :sharebeer

Same as Shackleton. When I had debt, I hovered around the 730's. Once we paid off the mortgage 815ish within a few months. We have two open credit cards. Now that we don't have an interest in borrowing money, we can borrow with impunity.

Oh and our credit is locked down.

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Re: Credit score after becoming debt free?

Post by scrabbler1 » Fri Jul 13, 2018 7:53 am

mptfan wrote:
Wed Jul 11, 2018 5:27 pm
I am proud to say that I am now debt free, completely debt free including no mortgage and no debt of any kind. I can't really talk about it with most people for the fear of coming across as bragging and creating resentment, this is about the only place I can talk about it.

Here is my question...now that I have no debts and no debt payments or installment loans of any kind, no mortgage, no car payments, no student loan payments, no HELOC payments, nothing...how will that affect my credit score going forward? I do have two credit cards, one is an American Express Blue card and the other is the Fidelity 2% signature visa card, and I use both of them regularly and I pay the balance in full on both cards every month, and I know that they still count as an open credit line for purposes of calculating my credit score, but I am curious if my credit score will be adversely impacted because I no longer have any other types of debt or installment payments of any kind other than credit cards.

I don't really care that much about my credit score anymore, but I anticipate that I may want to get a mortgage at some point in the future if I want to buy a different house, so I want to know how my current situation may affect my credit score in the future. Thanks.
I don't know how my credit score was affected when I paid off my mortgage 20 years ago and became debt-free. But I can tell you that today my credit score has been in the 820s most of the time. I have no other debt and pay off my credit cards in full every month. My main card I use about 5% of its limit while the other one (my back-up card) I make one small purchase a year to keep it open. When I do use my main card a little more often, the credit score takes a small hit but remains over 800.

I don't know if a "sneak peek" of what might happen to your credit score ~20 years later will be helpful to you, though.

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Re: Credit score after becoming debt free?

Post by SimonJester » Fri Jul 13, 2018 8:13 am

Have been completely debt free going on six years now. Four of those years I didnt have any credit cards opened, my credit score was non existent as in they could not calculate a score for me. Three months after opening a CC, my score showed up in the 820s, I now sit in the 840s... One of the factors in my score being what it is is reported as "Lack of recent installment loan information". LoL whatever I dont care...


I would say as long as you keep a couple of credit cards opened and pay the balance off every month, you will be fine.
"They who can give up essential liberty to obtain a little temporary safety, deserve neither liberty nor safety." - Benjamin Franklin

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Re: Credit score after becoming debt free?

Post by bloom2708 » Fri Jul 13, 2018 8:21 am

~12 years after paying off mortgage (last debt).

We use 3 credit cards for basic monthly purchases. (Costco, Amazon Prime, Upromise 529).

No other loans of any kind taken out during that time period.

Credit score has stayed in the 825 to 835 range. I don't know how or why.
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Steelersfan
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Re: Credit score after becoming debt free?

Post by Steelersfan » Fri Jul 13, 2018 2:02 pm

Paid off mortgage 10 years ago so only credit now is two credit card paid off monthly with very low utilization. The credit score may have dropped 5 to 10 points over the years but has never been below 810.

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Re: Credit score after becoming debt free?

Post by DesertGator » Thu Jul 26, 2018 7:17 pm

About 20 years ago I did some work with an Equifax subsidiary that was using credit scoring models. This was back when no one really knew their credit scores or how it worked.

Credit scoring is a mathematical algorithm that predicts risk of default. Since your credit profile, age of credit, balances etc varies (perhaps only slightly) each month, your score will vary as well - not to mention the algorithm may be adjusted as new risk factors are discovered & consumer behavior changes.

Imagine that you have a $100,000 mortgage and you're also paying your other debts and bills on time. Let's say your credit score is X. Suddenly you pay off that $100,000 mortgage. Now the scoring model can infer you have $100,000 less liquid cash than before. Might that suggest you have a slightly weakened ability to weather an unexpected downturn, loss of job or illness? True, you are saving on interest & principal payments going forward, but you are relatively less liquid. The scoring models don't know how much cash you still have on hand, so it doesn't matter if you have another $1M. It is not surprising for your score to be adjusted downward below X due to the possible increased risk from less liquidity. It is also likely that this risk adjustment is based on historical studies that show a slight increase in defaults in the near term after someone pays off a large installment debt.

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ClevrChico
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Re: Credit score after becoming debt free?

Post by ClevrChico » Thu Jul 26, 2018 7:33 pm

I'm in a similar situation as OP. My FICO 8 score is in the low 800's. I wouldn't sweat it.

47Percent
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Re: Credit score after becoming debt free?

Post by 47Percent » Thu Jul 26, 2018 8:10 pm

Spirit Rider wrote:
Thu Jul 12, 2018 8:59 am

Sometimes, I wonder how yet again we have another mantra, this one of being "Debt Free" at all costs despite of its clear Behavioral Finance failing. It seems as though it has become a Dave Ramsey-esce badge of honor instead of good money management

Debt is but a financial tool, neither inherently good or evil. Sometimes debt is used because it is the only way to achieve goals. Sometimes debt is used because it represents a clear financial advantage. Managing your tax liabilities is one of the latter.

Even if someone is structurally debt free (no mortgage, installment loans or credit card balances subject to interest charges). It is good money management e.g. to use a low-interest HELOC short-term, "0% interest on purchase" credit card offers, low interest car loan, etc... to avoid paying 15% capital gains taxes. It might even make sense purely to manage your MAGI for ACA subsidies or IRMAA premiums.

You are perfectly free to stick to your mantra, but reasonable people can disagree and I most definitely do. Being debt free is a noble goal, but the the efficient use of credit is also a financially prudent path.
I totally agree. I consider the "Debt free" mantra followers in the same category as people who have to literally "cut-up" the credit cards so that they won't charge on those cards.

I have had > $150K+ in CC cumulative credit limits with half a dozen CC's for well over a couple of decades. In addition to those I have an AMEX metal card which says they don't have a preset limit (they don't disclose), which I know will approve a $50K transaction if needed. The maximum I have ever dipped into those is probably 10-15%, every time paid off by the next bill date with no interest charge. Other than a mortgage, never had any revolving loans (not counting CC's) to speak of. At least 5 different times that I know of, free credit scores from BofA credit card and Discover cards have reported my credit score as 850, on a scale with a max of 850. I didn't really know that was possible!

I am not necessarily in any hurry to pay off my mortgage loan at 3% even though its deductibility is iffy going forward.

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Re: Credit score after becoming debt free?

Post by SQRT » Fri Jul 27, 2018 7:27 am

jimb_fromATL wrote:
Wed Jul 11, 2018 7:05 pm
I never knew my credit score until a few years or so ago when Discover card started showing it for free. We haven't had a mortgage for more than 20 years, and the last time we had any other loan was 1980. Our FICO score hovers around 815. Not sure why it goes up and down a few points, since we don't apply for credit and don't carry balances on the two credit cards that we use as a substitute for cash from month to month.

jimb
Reflects our circumstances exactly. I think there is way too much concern about credit scores. Especially if you don’t need to borrow. Perhaps some minor issues might arise if you apply for a new card or change insurance companies, but not really significant. Improving your credit score seems like a poor reason to carry debt if it’s not needed/wanted otherwise.

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