A solid credit score is necessary to get approved for a home loan. That's why we recommend against opening any new lines of credit or making large purchases on credit when applying for a home loan --these actions lower your score, resulting in getting denied a mortgage.
But what about after? Does buying a house help or hurt your credit score? Let's find out.
The short answer is that credit reporting agencies will penalize your mortgage debt in the short term. However, soon after, there's a nice boost to your score, given that your mortgage payments have been on-time.
This eventual boost is why mortgage debt is considered "good debt." Here's why:
Installment credit, like a mortgage, eventually helps your credit history by making consistent payments that whittle down the balance. On the other hand, credit card debt can continue to climb, so it is more likely to impact your credit negatively.
While there is no definite answer as to when you'll see an improvement, on average, you'll see it recover in about 5 months. Also, that change may be in incremental jumps rather than one change.
However, remember that your other activities are also affecting your credit score. On average, the following activities will continue to affect your credit history for:
Use these tips to help you continue to build your credit score after a mortgage. These are based on FICO's recommendations --the most commonly used credit score model.
Obtaining a mortgage might make your credit dip slightly at first, but it will eventually increase – and maybe even higher than you had before! Start your pre-qualification online today and reap the many benefits that a home loan can afford you.