How Your Mortgage Affects Your Credit Score
Financial gurus are constantly warning consumers to keep their credit rating in great shape if they plan to buy a house in the near future. The higher your credit score, the more likely you are to get the better mortgage rates. However, once you have secured the mortgage, it can affect your credit score in the future.
Key points to remember
- Taking out a mortgage will temporarily hurt your credit score until you prove that you are able to repay the loan.
- Improving your credit score after a mortgage involves paying your payments on time and keeping your debt-to-income ratio at a reasonable level.
- Mortgages help your credit score by improving your mix of revolving debt and installment debt. This mixture represents approximately 10% of your score.se.se.ssssssss
Initial credit score achieved
Immediately after getting a new mortgage, expect your credit to suffer. Your credit score is a digital representation of your ability to pay off debt obligation. When you take out the biggest loan most consumers will ever have, your score drops until you prove you have the capacity to pay off the loan and actually make the payments you promised.
This temporary drop in your score may make it difficult for you to get other loans or get a loan on the credit terms you expect. Plan to wait at least six months before applying for a large loan.
A mortgage is the pinnacle of consumer credit where, if you can qualify for a mortgage, you are considered a trustworthy borrower.
Make payments on time
How do you get your score back to its pre-mortgage level? By making payments on time all time. Don’t sign up for those services which say they can boost your credit score fast. Simply make your mortgage payments, and all other payments, on time. As you prove that you are a responsible borrower, your score will naturally increase.
Pay your bills on time and in full. If your hectic lifestyle sometimes requires paying bills lower on your priority list, set up automatic payment through your bank so you never forget.
Percentage of your score that matches payment history, according to FICO.se.se.ssssssssse.se.ssssssss
How a mortgage affects your credit
Know the fundamentals. Your credit report measures your ability to repay your debts. You don’t make a lot of money, so keeping your debt amount in proportion to your income is essential. This is called your debt-to-income ratio.
Keeping it at a maximum of 36% is considered optimal, with a maximum of 28% for your mortgage.se.se.ssssssssIf you know you’re going to be buying a house in the near future, don’t take on more debt. Keep your debt-to-income ratio low.
However, keep building your credit history. A little credit is better than no credit when it comes to your credit score. And of course, paying your mortgage on time is good for your credit history.
Mortgages Can Improve Your Credit
Calculating your credit score is a bit of a mystery. FICO publishes general guidelines to help consumers understand their score, but no one knows the details of the calculation. However, the types of loans you have available play a role in your score.
If your credit report contains nothing more than a bunch of credit card loans, your score won’t be as high. This mix of revolving debt and installment debt (your mortgage) represents about 10% of your score.se.se.ssssssssse.se.ssssssss
If you pay off a credit card a little late, the effect on your score won’t be huge. If you don’t pay your mortgage on time, expect your credit score to reflect it. If this happens, make the payment as soon as possible. If it’s a little late, your mortgage company may not report it to the credit bureaus.
The bottom line
As long as you pay off your mortgage each time, the debt you incur on a home is considered responsible debt. And try to avoid making any other major purchases within six months of taking out a mortgage, as your credit score will likely drop after the loan process. A responsible payment history for your mortgage and other bills should soon raise your score. However, if uncontrollable circumstances cause multiple late payments, further lowering your credit score, one of the best credit repair companies may be able to repair some of the damage.