Ask Money

Prepay mortgage and credit score

Chris Farrell Apr 8, 2010

Question: I know it helps my credit score if I make extra payments on my mortgage. Does it matter how much I pay? Is it better to pay $250 than $100? Is it better to do it each month? Thanks, Jim, Minneapolis, MN

Answer: In essence, the key to a good credit score is carrying a modest amount of debt and paying your bills on time. According to the credit scoring giant Fair Isaac 35% of your score comes from your payment history with your recent performance carrying greater weight than the distant past. Another 30% of your score is based on the total amount of debt you have with all creditors. Assuming that you don’t have any other debts since you’re able to accelerate mortgage payments, it won’t make much of a difference from a credit scoring perspective whether you make the required monthly mortgage payment or toss in some extra money. (Fair Isaac says the remaining credit scoring considerations are how long you’ve been a credit user (15%), recent efforts to get credit (10%), and your mix of credit (10%), such as auto installment loans and credit card revolving credit.)

The real financial gain from accelerating mortgage payments doesn’t come on the credit score side of the ledger. It’s that you reduce how much interest you’ll pay the lender and you’ll build up equity quicker.

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