How Does a Mortgage Affect Your Credit Score?

Written by Jordan BlansitUpdated: 16th Jan 2022
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If you’re looking to buy a home, chances are that you’re not buying with cash. Most new homeowners finance at least part of the cost of their new house with a home loan. A mortgage not only lets you build home equity over time, but also your credit score – assuming you keep up on your payments.

Does Buying a House Help Your Credit?

For most people, your mortgage is the single largest debt you’ll ever incur. And ultimately, buying a house can help your credit – eventually. But you’ll have to exercise fiscal responsibility and patience to achieve your homeownership and credit goals.

To start, many homebuyers don’t just take the first mortgage quote they receive. Instead, they shop around to find the best rates and terms. Every time you submit a new loan application, your credit report can take a hit. (More on that below.) Then, once you take on your new debt, that counts as another strike against your credit report.

That said, when you start making monthly mortgage payments, you can rebuild your credit score and boost it higher than before. The sheer size of your mortgage also plays in your favor, as lenders prefer borrowers who consistently pay their debts over time.

However, the extent to which buying a house can help your credit depends on where you stand when you take out your loan. If you have a high credit score, to begin with, you may only see incremental increases over time. By contrast, if you’re starting with a lower credit score, you have more rope to climb, which can lead to greater improvements over time.

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How a Mortgage Affects Your Credit Score

Several factors impact your credit score, including your credit mix, age of your credit lines, and your payment history. Let’s take a look at how your mortgage comes into play.

Expect a Temporary Decrease

Two of the most common reasons for your credit score to decrease include new credit inquiries (such as filling out a loan application) and taking on new debt.

Getting a mortgage involves both – first shopping around for the best rates, and then accepting the loan to buy your home. That said, most credit models count multiple mortgage loan inquiries within 30-45 days as a single “hit” against you, limiting the extent of the damage. Getting a mortgage, like taking on any new debt, also lowers the average age of your credit accounts while increasing your debt.

Together, these factors compound to drop your credit score anywhere from 15 to 40 points when you first take on your home loan. However, this initial dip typically recovers within a few months. (Still, don’t plan on getting any new loans or credit cards for at least six months after buying a home.)

Mortgages Add Credit Diversification

Your credit mix is another factor that makes up your credit score. Mortgage lenderslike to see that you can use a variety of debts responsibly, including installment loans (like mortgage and auto loans) and revolving credit lines (like credit cards). The more diversity you have in your credit report, the better you look to prospective lenders.

On-Time Mortgage Payments Strengthen Your Credit Profile

Your payment history is the most heavily weighted factor in your overall credit score. But a few on-time payments won’t make much of a difference – you’ll have to prove you’re responsible for years. Because mortgages typically require 15-30 years of payments, you’ll build your credit age and lengthen your on-time payment history. Over time, this can raise your score substantially.

But in the reverse, missing even one payment may affect your credit score by several points, so it’s crucial to make your monthly payment on time and in full.

How Much Does Your Credit Score Go Up with a Mortgage?

While FICO publishes guidelines to its credit scorecalculations, the exact equations remain a bit of a mystery. As such, there’s no hard and fast rule to how much your credit score will go up with a mortgage.

However, you can expect your credit score to return to its pre-mortgage glory around 5-6 months after taking out your loan, presuming you make your payments on time. After that, your score will rise over the years as you pay down your loan and build your credit history.

Typically, the lower your score begins, the more potential it has to rise as you pay off your mortgage. But if you already have excellent credit prior to your mortgage, don’t expect your payments to make a huge dent.

Bottom Line: How Does a Mortgage Affect Your Credit Score?

Lenders generally view mortgages as “responsible” debt, as you not only build equity in a valuable asset, but improve your credit report, too. The key to using your mortgage to build your credit score is to keep your account in good standing and use other debts responsibly, too.

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Jordan Blansit
Jordan Blansit

Jordan Blansit is a Senior Writer, Researcher, & Product Analyst for SimpleMoneyLyfe with an inexplicable predilection for mortgages, investing, and personal finance. When she’s not click-clacketing from the comfort of her living room, you can find her in the California Redwoods or Oregon Siskiyous. Jordan’s areas of expertise are mortgages, personal loans, credit cards, and investing.