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Until the Fair and Accurate Credit Transactions Act was signed into law in 2003, Americans weren’t entitled to free annual credit reports. And 24 years ago, when I began my career in consumer news, you couldn’t see your credit score at all, at any price.

Consumer access to credit reports and scores is a good thing. After all, if someone’s going to make important decisions about your future based on this stuff, we have both the right and obligation to make sure it’s accurate, as well as understand how to improve things.

While it’s good to be vigilant, however, let’s not become obsessed. Here’s this week’s question:

On my latest credit check, there was a remark about a lower ranking because “I had no mortgage.” I paid my mortgage off by 1996 and don’t understand how that could be counted against me. How can I fix this? — Helen

Here’s your answer, Helen!

Can a Lack of Debt Hurt Your Credit Score?

When it comes to credit scores, by far the most important factor is how good you’ve been at paying your bills on time, every time, for a long time. Do that flawlessly, and you can rest easy.

While a long, on-time history is the main thing, however, it’s not the only thing. Something else lenders like to see is a mix of different types of credit. The two major kinds are revolving credit, like credit cards, and installment credit, like car and mortgage loans.

So what Helen may have seen when she checked her score is a notation that it may be negatively affected by a lack of installment loans.

I can’t blame Helen for being concerned. After all, scores are important and when a notation indicates you may have done something wrong, it’s easy to think it’s a big deal and needs fixing. But in this case, it isn’t and it doesn’t.

What Should Helen Do?

For starters, take note that only 10% of your score is related to your credit mix, according to Fair Isaac, originator of the most widely used score. So having a variety of credit types isn’t hugely significant.

Of course, there’s a quick, albeit ridiculous, solution if Helen wants to try to raise her score by diversifying her credit portfolio. She could take out a mortgage, car loan, signature loan or other type of installment loan.

But unless Helen’s life depends on earning the highest possible credit score, she’d be nuts to take out a loan for the sole purpose of making Fair Isaac happy. If she has a great history of paying her bills on time, the impact on her score of not having an installment loan will be negligible. If her history isn’t so great, she’s much better off simply continuing to make on-time payments rather than taking on new debt.

I found an article on Kiplinger that addressed a similar issue: How paying off a mortgage affects credit scores. From that article:

Craig Watts, a spokesman for Fair Isaac, the firm that created the widely used [FICO] score, says that your credit score will likely be unaffected (by paying off a mortgage.) If your mortgage is your only installment loan, however, your score could suffer a slight ding, although not enough to make you want to change your plans.

Bottom line? While Fair Isaac or potential lenders may want you to have lots of different kinds of credit to earn the highest possible credit score, let’s not get carried away. Paying interest is almost always a waste of money and often a source of stress. Please: Pay off your mortgage, credit cards, car loans and anything else you owe. And when you do, don’t worry about any notations you see and don’t obsess about any potential negative impact it will have, particularly if you aren’t going to be borrowing soon. If you pay your bills on time, both you and your score will be just fine.

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