Paying off your mortgage may negatively affect your credit score if it happens to be the only loan that you are paying by installment. However, the actual effect is very small and you could ignore it if you want the peace of mind of having no debt to pay.

Paying off the loan early may also ensure that you will have completely eliminated the possibility of being late or defaulting in your  payments in the future. These are the situations that could really degrade your credit score and avoiding them would make more sense.

If you have other loans that you are paying by installment, your credit score will hardly be affected. You might expect your credit score to increase or
improve once you have paid off your mortgage but it would not. In fact, as we have mentioned above, your credit score will actually drop a bit if your
mortgage is the only debt that you are paying by installment.

Having a combination of installment loans, such as an automobile loan, student loan, or a home mortgage, will actually improve your credit score because FICO provides a 10 percent weight to having various kinds of credit. The more types of installment loans you have the less the impact of paying off your mortgage will have on your credit score. Of course, it should be assumed here that you have maintained a good payment history.

There is actually nothing to worry about the small decrease in your credit score if you pay off your mortgage. If you have good history of paying your  mortgage on time, this will counter the negative effect of paying off the mortgage. This is because your payment history for payments that are not delayed for more than 15 years will have a 35 percent impact on your credit score.

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