Every month, one of the credit cards I use shares an updated FICO credit score with me. With its February update, my score dropped a whopping 49 points. That move knocked me down to a lower rating classification in the credit rating system, making it appear as though I'm a bigger credit risk than I was before.

Yet the key reason my score dropped so much is that I paid off my mortgage. Indeed, the key negative driver affecting my score is described as follows: "There is either no recent activity or insufficient information about your installment loans. Having a loan along with other types of credit demonstrates that you are able to manage a variety of credit types."

Only in the squirrely world of algorithmically driven ratings does paying off a huge debt and freeing up nearly $1,800 per month in cash flow make someone a worse credit risk. Frankly, I'd rather have that much more cash in my pocket every month than the bragging rights of a higher credit score. That's why I'm OK with having my credit score drop nearly 50 points.

Continue reading

Source Fool.com