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One blogger recently paid off his mortgage, and saw his credit score drop 17 points after the debt went off his record. It's still above 750, and it's only really an issue if he wants to apply for another loan, which he has no real need to do at the moment. But that brings up the question: As strange as it sounds, is he shooting himself in the foot for later financing if he goes any length of time without debt? In my experience with peer-to-peer lending, for example, borrowers who had no credit rating were placed in almost the same category as a high-risk borrower. |
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I think if he is going to go back into debt then yeah it could affect him down the road. But I also think that begs the question, if you have your house paid off, what would you need to borrow money on? If he gets another mortgage he will be fine. From everything I have read on getting a mortgage, a real high FICO score or having a FICO score of zero will be no problem in getting a loan because with a FICO score of zero they will have to do manual underwriting. When doing the underwriting they will see no other debt and presumably a huge down payment which will be making a loan a no brainer. I think this just goes to show the short comings of the FICO score. A person pays off their largest debt on most likely their most valuable asset and their FICO score goes down?!?!?!?! That makes no sense to me. But to answer your question, no I do not think it is better to have a little debt then none at all. It is a good philosophical good question though, but ultimately I would rather have more money in the bank then have a higher FICO score. |
