Although you may think paying off your mortgage loan early will increase your credit score, that isn't always the case. You'd be getting rid of a large debt, which is normally good for your credit score. However, depending on what else is in your credit report, your credit score could actually take a dip.

Weight Given to Installment Accounts

Credit scorers like to see different types of accounts, including installment loans, in your credit mix. While FICO scores generally zero in on your mortgage payment history, lenders want to know that you can handle different kinds of credit. But if you have only a few credit accounts, an installment loan can carry more weight in assessing your level of repayment risk.

Factors That Affect Your Credit Score

Your payment history makes up a significant portion of your credit score -- about 35 percent. If you apply for a new line of credit after you pay off your mortgage loan, a lender or creditor will want to know how you've managed credit in the past. It comes down to how good you were at paying your past debts.

Making timely payments on a mortgage loan can help raise your credit score because it shows you can consistently make your payments in full by the due date. It can also make a difference in your credit score when you no longer have a lender reporting your mortgage payments to the credit bureaus.

The length of your credit history is another factor that goes into calculating your credit score. Making mortgage payments over time shows an established credit history that can raise your credit score. The longer your credit history, the more lenders and creditors know about how you manage your finances.

Effect of a Delinquent Payment History

If you manage to pay off your mortgage early, but your credit report shows a history of late or missed mortgage payments, those delinquent payments will stick around to haunt you for awhile. Even if you no longer have a mortgage loan, any late payments showing on your credit report may flag you as a high lending risk to future creditors.

Drawback of a Closed Account

While paying off your mortgage loan early may bring you financial relief, it may not impact your credit score.

When you pay off the loan, your lender will close the account. Although it may seem ridiculous, having no debts actually makes you more of a credit risk. If you owe no debts, lenders and creditors have nothing to report to the credit bureaus.

Although your paid-off mortgage will remain part of your credit history, credit scorers generally give more weight to the information a lender reports on an open account with recent activity.

For more information about home loans, contact MCS Bank or a similar company.