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As a follow up to Should I pay off investment property mortgage question, if a person has 2 mortgages and decides to use all the savings to pay off one of the mortgages (why give the bank 5%), how will that affect the credit score? Will it go down as the loan/cash ratio will increase significantly? (though loan to income ratio decreases)

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up vote 3 down vote accepted

Credit utilization (and therefore, your credit score) isn't impacted by one's mortgage. I have a current mortgage and saw a zero utilization the one month that I paid my credit cards in full just before the bill was cut. What will change is your borrowing ability. Your debt to income will drop and the payment you used to make will be available to service a future debt if you wish.

Note - obviously, a regularly paid on time mortgage helps one's score and late payments will hurt. I am addressing just the 'utilization' portion which is what i think the OP is asking. The credit report, strangely enough, does not take income into account. The focus instead is on utilization.

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but isn't this similar to closing unused credit cards? – Vitalik Nov 25 '12 at 15:27
Not exactly. Cards have credit lines and balances that factor into utilization. Strange at it seems, as much as mortgages are part of your credit history, the utilization and available credit are not impacted. Close too many unused cards and your average account age may drop and utilization go up, both impacting your score. – JoeTaxpayer Nov 26 '12 at 2:06
So the mortgage balance doesn't factor into utilization? – Vitalik Nov 26 '12 at 2:10
No. As I stated in my answer above, my score showed zero utilization despite a mortgage balance. – JoeTaxpayer Nov 26 '12 at 3:26
I think that is true of a first mortgage but what about a second? I thought that was treated like any other loan. – user4127 Nov 26 '12 at 18:41

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