Will I Maintain a Good Credit Score If I’m Debt Free Except the Mortgage?

Debt Free Except the Mortgage and Credit Score EffectsMost people I know are debt free except the mortgage, or they want to get there very fast.

The question then arises, will you be able to maintain a good credit score if all you are doing is paying on a mortgage?

If you are in this situation, the term that you need to familiarize yourself with is “credit mix”.

Credit mix is the different types of credit that you currently have. For instance, you could have revolving credit, like a credit card. You could also have installment credit like a car loan or mortgage. All else being equal, the more types of debt you have the better your credit mix and the better your score.

Given that, when you pay off everything but the mortgage you are reducing your credit mix, UNLESS you keep your credit card accounts open. Even though you’ve paid off your credit card, if you keep the account open, your available credit line will still be reflected on your credit report and in your score.

Of course, there is a possibility that if you aren’t using your credit card, the issuer could drop you or reduce your limit, reducing your available credit. At that time, you’d have more than credit mix to worry about, you’d have an available credit issue.

The good thing is that in the immediate your credit mix only makes up 10% of your credit score. So, even if you reduce your credit mix, a 10% knock against your credit score isn’t crushing.

Credit expert Jon Ulzheimer said this about credit mix in a Credit.com article, “it’s certainly not a priority to address, anyone who has hopes of maxing out their credit scores should pay attention.”

Want to see this in action? Five Cent Nickel has a post about what happened to his credit score when he paid off his mortgage. He took a 17 point hit.

Another obvious question to ask yourself (that many of you have already been thinking in your head) is “why do I need a good credit score?” Well, you may not.

If borrowing is in your future, either through a refinance or new real estate purchase (or other type of credit for that matter), then you probably want to consider maintaining a quality credit score.

Additionally, a lack of credit score, or poor credit score could hurt your chances of renting a house or apartment. Not every landlord uses credit scores/history, but some will. I do. But I know that lack of score would not automatically put someone out of the running for me. It’s bad history that I’m mostly concerned with.

But if this (getting more credit, renting, etc.) is not a big deal for you, then you could definitely stop caring. Many people who have reached financial freedom are proud about their lack of credit history and the fact that they don’t care. Here’s one of Adam Baker’s latest tweets:

I’m not quite to that point myself. I enjoy maintaining a responsible credit history and I like that it gives me more financial options. But I do plan on being there one day.

So the bottom line is this, if you maintain a decent credit mix (mortgage and a few “open” revolving account) and pay all your bills on time, you should not have a problem maintaining a good credit score. If you close the revolving accounts (i.e. credit cards) you will take a slight hit to your credit.

Overtime, as your credit history begins to fade away and all your report shows is a loan for a mortgage, your score could take additional hits. But by that time your goal of financial freedom may have been achieved and your need for a credit history could be a thing of the past.

What’s your take? If you are debt free except the mortgage, what are your credit score concerns, if any?

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Last Edited: July 30, 2012 @ 1:56 pm
About Philip Taylor

Philip Taylor, aka "PT", is a husband and father of two. He created PT Money back in 2007 to share his thoughts on money and to meet others passionate about managing their finances. All the content on this blog is original, and created or edited by PT. Read more about Philip Taylor, and be sure to connect with him on Twitter, Facebook, or view the Philip Taylor+ Google profile.