Can Paying Off Your Mortgage Lower Your Credit Score?

It may seem counterintuitive, but paying off your mortgage can sometimes lead to a temporary dip in your credit score. This isn’t a penalty for responsible financial behavior, but rather a consequence of how credit scoring algorithms work. Understanding why this happens and how to mitigate the impact can help you maintain a healthy credit profile.

Why Does Paying Off a Mortgage Sometimes Hurt Your Credit?

Several factors contribute to this phenomenon. Credit scoring models, like those used by FICO and VantageScore, assess creditworthiness based on a variety of criteria. Paying off a mortgage can affect these factors in the following ways:

• Credit Mix: Credit scores favor a diverse mix of credit accounts – including installment loans (like mortgages and auto loans) and revolving credit (like credit cards). Eliminating an installment loan reduces this diversity.
• Length of Credit History: A long credit history is generally viewed positively. A mortgage is often one of the oldest accounts a person has. Closing it shortens the overall length of your credit history.
• Amounts Owed: While reducing debt is good, credit scoring models also consider your outstanding debt levels. A mortgage represents a significant portion of a borrower’s overall debt.

John Webb from Experian notes that while a dip in score is possible, lenders prioritize affordability. “When someone applies for credit, it doesn’t matter too much that their ‘score’ has dipped,” says Webb. “Lenders build their own calculations based on affordability and, if you no longer have monthly outgoing mortgage payments, you will have more disposable income, which is considered a positive.” Source

How Significant is the Impact?

The impact of paying off a mortgage on your credit score is usually temporary and relatively small. The “blip” is likely to be brief and inconsequential. The exact effect varies depending on your individual credit profile. Factors like your overall credit history, other open accounts, and credit utilization rates all play a role.

What Credit Scores Are Affected?

Mortgage rates are heavily influenced by credit scores. As of March 2, 2026, rates vary significantly based on credit tier. ConsumerAffairs provides a breakdown of average APRs, monthly payments, and total interest by score tier. Borrowers with lower credit scores (e.g., below 620) will generally face higher rates. CNBC highlights lenders specializing in borrowers with less-than-stellar credit.

Can You Mitigate the Impact?

While you shouldn’t avoid paying off your mortgage out of fear of a credit score dip, here are some strategies to minimize the impact:

• Maintain Other Credit Accounts: Keep other credit accounts open and active, even if you pay them off regularly.
• Don’t Close Old Accounts: Avoid closing older credit accounts, as they contribute to your credit history length.
• Apply Credit Responsibly: Continue to use credit cards responsibly and pay your bills on time.
• Monitor Your Credit Report: Regularly check your credit report for errors and to track your score.

Mortgage Options for Borrowers with Lower Credit Scores

Even with a lower credit score, homeownership is still attainable. NerdWallet identifies several options for borrowers with bad credit, including FHA loans and lenders that accept scores as low as 500. Source. FHA loans, in particular, often have more lenient credit requirements.

Key Takeaways

• Paying off your mortgage can sometimes temporarily lower your credit score.
• This is due to changes in credit mix and length of credit history.
• The impact is usually small and temporary.
• Maintaining other credit accounts and responsible credit use can help mitigate the effect.