Your mortgage is probably the biggest credit purchase you'll ever make. Missing payments or defaulting on the loan can devastate your credit score. Years of paying on time, however, will hold you in good stead when lenders check your credit history. Paying off the mortgage completely may not affect your credit score as much as you imagine.
TL;DR (Too Long; Didn't Read)
It doesn't take long for your mortgage payoff to show up on your credit report. Mortgage companies update credit bureaus once a month.
Payoff Time Frame
Your mortgage payoff won't show up on your credit report overnight, but it should be there within a couple of months. Lenders typically report to the big credit bureaus -- Experian, Equifax and TransUnion -- once a month. If you deliver the check right after this month's reporting date, it'll be another 30 days before the word goes out. If your lender doesn't update its records promptly, it might take slightly longer.
Ending the Loan
Paying off your mortgage doesn't actually boost your credit score. If the mortgage was the only installment loan you have, your score may even dip slightly. Installment loans are one-time borrowings such as car loans, home equity loans and mortgages -- you borrow money, pay it back and the loan goes away. This contrasts with credit cards, where you take out credit, pay it off, then borrow again. Credit bureaus like to see a mix of both in your file.
Effects of a Payoff
Your payment history -- whether you pay your debts off on time, consistently -- comprises 35 percent of your credit score. If you've been paying your monthly mortgage bill on time for five, 10 or 30 years before you pay it off, the years of regular payment will have added more points to your credit score than paying off the loan does. Years of good credit will more than make up for any dip in your score from closing an installment loan.
Rapid Rescoring Firms
If you want your credit report updated ASAP, you may have to turn to a rapid-rescoring firm. These companies have contacts with the major credit bureau that allow them to get new information into your file in a week or less. Many companies that claim to be able to do this are frauds, however, so move carefully. You'll have to ask your lender to contact a rapid rescorer for you as they don't work directly with the public. You may be better off finding other ways to rebuild your credit, such as paying off other bills on time and reducing your debt.
A graduate of Oberlin College, Fraser Sherman began writing in 1981. Since then he's researched and written newspaper and magazine stories on city government, court cases, business, real estate and finance, the uses of new technologies and film history. Sherman has worked for more than a decade as a newspaper reporter, and his magazine articles have been published in "Newsweek," "Air & Space," "Backpacker" and "Boys' Life." Sherman is also the author of three film reference books, with a fourth currently under way.