Taking out a mortgage is a huge milestone for youâand your credit. For starters, building and maintaining the credit necessary to secure a mortgage is a big win. Responsibly managing a mortgage demonstrates your ability to pay loans on time, handle different credit types and maintain a large, long-term account, all of which can contribute to positive gains for your credit score over time.
Along the way, though, there are times when a mortgage could possibly hurt your credit, either causing a minor bump or more serious turbulence if you encounter difficulties in paying your loan. Here are a few of the ups and downs you and your credit might encounter when you get a mortgage.
Getting a mortgage is a major financial move that can have both positive and negative impacts on your credit score. On one hand, a mortgage demonstrates your ability to manage a large, long-term loan responsibly On the other hand, the hard inquiries and new debt from the mortgage could cause your score to dip temporarily Overall, if you make your mortgage payments on time, having a mortgage will likely help strengthen your credit in the long run.
How a Mortgage Can Hurt Your Credit Score
When you first apply for a mortgage, the hard inquiries made by lenders to check your credit report can lower your score slightly Each hard inquiry causes your score to drop by a few points typically The higher number of recent inquiries, the more your score is impacted.
Once approved, your score may dip again when the new mortgage account is reported since this increases your total debt load. The higher debt level can negatively influence your credit utilization ratio and other factors in your score.
Finally, if you miss or delay mortgage payments, your credit score can plummet substantially. Payment history makes up over one-third of your FICO credit score. Just one 30-day late payment can remain on your report for 7 years and severely damage your score if you otherwise have a short or limited credit history. Multiple missed payments or a foreclosure are even more detrimental.
How a Mortgage Can Help Your Credit Score
Despite the short-term hits, there are a number of ways having a mortgage strengthens your credit in the long run:
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On-time payments: Making consistent, timely mortgage payments builds positive payment history, the biggest factor in your score.
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Credit mix: A mortgage adds installment loan history which diversifies your credit mix, accounting for 10% of your score.
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Length of credit history: The long length of a mortgage vastly improves your average account age over time.
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Large account size: The mortgage loan amount positively influences your total accounts value.
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Responsible borrowing: Qualifying for and managing a sizable mortgage signals to lenders that you are a trustworthy borrower.
As long as you make payments responsibly, the benefits above mean your credit score will likely improve with a mortgage over the long term versus not having one.
Tips to Minimize Credit Score Damage When Mortgage Shopping
If you need to shop around and compare mortgage offers from multiple lenders, here are some tips to limit the impact on your credit score:
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Check your credit reports for errors before applying so your score is maximized.
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Get pre-qualified first before formally applying to gauge affordability.
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Concentrate rate comparisons within a 14-day period to group hard inquiries.
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Avoid new loan/credit applications aside from the mortgage while shopping.
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Maintain on-time payments on all existing credit accounts.
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Ask lenders if they can do a soft pull for pre-approvals to minimize hard inquiries.
The Impact of Different Mortgage Types on Your Credit
Certain types of mortgages influence your credit differently:
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Conventional mortgages have the most positive impact by demonstrating responsible borrowing and management of a large, long-term installment loan.
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FHA loans require a much lower down payment so may not boost your credit mix as much as a conventional loan.
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VA loans are guaranteed by the VA rather than solely based on your credit so have less positive influence on your score.
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USDA loans, HELOCs, and other alternative mortgages may not boost your credit as much as a sizable conventional mortgage paid regularly over decades.
When Does a Mortgage Typically Start Improving Your Credit?
It takes some time for the benefits of having a mortgage to outweigh the initial negative hits to your score from the new debt and hard inquiries. Here is a typical timeline:
- 1-6 months: Score dips from hard inquiry and new mortgage tradeline.
- 6-12 months: Score starts to rebound as positive payment history builds.
- 1-2 years: Score improves as mortgage continues to age and payments remain on-time.
- 3+ years: Score has improved from consistent on-time mortgage payments and increased length of credit history.
For most borrowers who pay their mortgage responsibly from the start, their credit score begins rising within the first year and keeps improving over time versus not having the account.
How to Offset Potential Credit Score Damage from a Mortgage
If you’re concerned about drops in your credit score from getting a mortgage, here are some ways to help counteract the impact:
- Pay down revolving balances before applying to lower your utilization ratio.
- Limit new credit applications for 6-12 months once approved for the mortgage.
- Consider asking lenders if they can do a soft pull rather than a hard inquiry.
- Enroll in credit monitoring to stay on top of any changes and address issues quickly.
- Build your credit history and mix with responsible use of credit cards and personal loans.
- Become an authorized user on a family member or partner’s credit account in good standing.
Summary
A mortgage can hurt your credit score in the short term due to hard inquiries from shopping around and the new debt once approved. However, the benefits of installment loan mix diversification, increased length of positive payment history, and responsibly managing a large account typically outweigh the initial downsides over the long haul. Paying your mortgage on time starting right away minimizes damage and helps your score rebound within the first year or two in most cases. With prudent steps to offset short-term impacts, a mortgage ultimately helps strengthen your credit for most borrowers focused on building long-term financial health.
How a Mortgage Can Benefit Your Credit Score
These early dips in your credit score are minor compared with the potential upside a mortgage can have for your credit. To understand this more clearly, consider the factors that go into calculating your FICO® ScoreÎ:
- Payment history: A typical mortgage provides the opportunity to make 30 years worth of on-time, credit-building payments.
- Credit mix: By managing a mix of installment loans like mortgages and auto loans as well as revolving credit card accounts, you show your ability to handle different types of credit.
- Length of credit history: Although a new mortgage works against this metric, over the life of the loan, your mortgage becomes a long-term account that shows longevity.
The sheer size of a typical mortgage can also play in your favor. Make on-time payments over the life of the loan, and the positive influence your mortgage has on your credit will be long-lasting.
How a Mortgage Can Hurt Your Credit
There is, of course, the other side to the story. If you have trouble repaying your mortgage on time, your credit score will almost certainly suffer. Although its always a good idea to make your mortgage payment on or before the due date, the real trouble for your credit begins about a month after you miss a payment. Most mortgage lenders extend a grace period of 15 days before theyll penalize you with a late fee. If a payment is 30 days or more past due, they will report it as late to the credit reporting agencies.
Even one 30-day late payment can have a lasting effect on your credit. Payment history accounts for 35% of your credit score and is the biggest factor in its calculation. A late payment will appear on your credit report for seven years, though its effect diminishes over time. An isolated 30-day late payment is less damaging than multiple late payments or one that extends to 60 or 90 days past due.
An unpaid mortgage that goes into foreclosure creates its own set of problems. In a foreclosure, multiple missed payments cause your mortgage to go into default. As part of your loan agreement, your lender has the right to seize your property and sell it to recover their money. The missed payments that lead up to foreclosureâ120 days or four successive missed payments is typicalâwill seriously damage your credit. The foreclosure itself also becomes a negative item on your credit report. Worst of all, you lose your home and any financial stake you have in it.
Clearly, the best course of action is to avoid late payments and foreclosure. If you think you may be unable to make a loan payment at any time, contact your lender to see if anything can be done to minimize the damage and help you get back on track.
The Truth About How Your Credit Score Affects Your Mortgage Rate!
FAQ
How badly does a mortgage hurt your credit?
Within the first 12 months after the initial delinquency, most loans experience a drop in the average FICO score, with those belonging in the highest FICO …May 6, 2024
What credit score do you need to get a $30,000 loan?
Does it help your credit to have a mortgage?
Mortgages help your credit score by improving your revolving and installment debt mix. This mix accounts for roughly 10% of your score.Feb 18, 2025
Will my credit score go up if I get a mortgage?
Adding a mortgage to your credit report will affect your scores the same as any other installment loan account. The addition of a new account will lower your average age of accounts (this can cause a drop in scores that will recover in time as accounts age).
Does a mortgage affect your credit score?
Getting a mortgage for a house can cause your credit score to decline in the short term. But as you pay your mortgage on time, your credit score will bounce back. Does a mortgage help your credit score?
Does paying off a mortgage affect your credit score?
“Your score may also see a modest drop when the loan is paid off, because it takes the mortgage off of the length of credit portion of your score, which accounts for 15% of your score,” Bakke says. So, if your mortgage is your only installment loan, you might want to reconsider paying it off.
What happens if you get a mortgage?
Here are a few of the ups and downs you and your credit might encounter when you get a mortgage. When a lender pulls your credit score and report as part of a loan application, the inquiry can cause a minor drop in your credit score (usually less than five points).
How can a mortgage improve my credit score?
Improving your score after taking on a mortgage involves consistently making your payments on time and keeping your debt-to-income ratio at a reasonable level. Mortgages help your credit score by improving your revolving and installment debt mix. This mix accounts for roughly 10% of your score.
Does a monthly mortgage payment improve your credit score?
Once you have a mortgage, making timely payments improves your credit score. Your monthly mortgage payment will depend on your home price, down payment, loan term, property taxes, homeowners insurance, and interest rate on the loan (which is highly dependent on your credit score).
Should I get a mortgage if I have a high credit score?
While you are trying to take out a mortgage, you should focus on protecting your score so it’s as high as it can possibly be. Applying for credit can not only lower your credit score, but it can also increase your debt-to-income ratio, which plays a role in whether you qualify for a mortgage.