How Having a Mortgage Might Affect your Credit Score
Although owning a house in itself won’t increase your credit rating, getting a loan and paying it off on time just might. Put simply, your credit score or rating is a reflection of how you manage your credit. Your assets and income neither detract from nor contribute to your rating, although creditors and lenders might take these into account when deciding on credit and/or loan-related decisions. Conversely, if you don’t manage your mortgage properly, purchasing a house could actually lower your credit rating.
Your Payment History
An expert from Primary Residential Mortgage, Inc. says paying off your monthly mortgage payments on time is the best thing you could do for your credit score because having a mortgage and managing it well will indicate to lenders that you’re a responsible borrower. And because 35% of your credit score is sourced from your payment history, repaying your mortgage on time, every time could significantly increase your credit rating, explains a mortgage broker from Fort Myers.
Your Credit History Duration
The usual home loan term is 30 years, and although this might seem like a long time for repaying your mortgage, the duration of your loan could help raise your credit rating. This is because 15% your score is from the credit history duration or length, meaning that each year you repay your loan on time is a plus to your rating.
Your Account Types
Having an installment loan like your mortgage could aid in raising your rating since FICO considers a combination of credit accounts as a great indicator of your ability to manage diverse credit accounts. Additionally, having another credit account types like credit cards could increase your score by 10%.
Some Points to Remember
Having a mortgage will help in improving your credit rating, but take note that it could likewise decrease your rating at first. This is simply because when applying for a mortgage, lenders will check your score to see if you’re eligible or not, and this, in turn, will initiate a hard credit inquiry that will lower your score temporarily. The good news is that your score won’t drop from several inquiries by lenders provided that they’re all within a period of 45 days.