It’s a popular opinion amongst those who work with any lines of credit that logic is discarded as often as possible.
We’ve seen plenty of cases where someone was utterly dismayed when presented with the information that paying off something like a five-year automobile note actually lowered their score up to 40 points.
Why Does This Happen?
The pure and simple answer is completely counterintuitive (see first sentence of blog) but here it is: The bureaus would rather you show consistent payments over years and decades than to succinctly pay it off.
The older the trade line the more you stand to lose when you close it out.
So you see instead of your score getting a bump in the right direction (and you getting a pat on the back) after paying off a fifteen to twenty-five year old note on your home, you’ll take a hit.
What Should I Do?
1. Keep in mind that the bureaus aren’t seeing the dedicated, responsible person who is paying off their note in a timely manner. They only see numbers and algorithms.
2. Evaluate the age of the account you are thinking about closing and consider whether it will help or hurt you in the borrowing process.
We understand that each situation is unique, we believe the loan process should be the easiest part of buying a home, and we’re excited to work with you.