How a Mortgage Helps and Hurts Your Credit Score
With the recent improvements to economic conditions in our country, many Americans are thinking of buying a home and taking on a mortgage.
And if your credit has survived the downturn relatively intact, it may be a great time to make this leap.
However, since you’ve done such a great job of maintaining good credit to this point, you may be wondering how having a mortgage can impact your score.
Would it surprise you to learn that having a mortgage can both help and hurt your overall credit score?
Let’s take a look at how:
These days, lenders are more vigilant than ever about who qualifies for a mortgage loan. They carefully scrutinize the income, debt levels and credit history of anyone who applies.
While this can be a nerve-wracking experience, it also indicates to the credit agencies a high level of financial responsibility, which is one way having a mortgage can help your credit score.
Another way a mortgage can boost your score is by adding to the overall “mix” of credit you hold.
The credit bureaus who assign your scores like to see a blend of both unsecured credit card debt and secured or installment debt, such as a mortgage.
There is, however, the flip side of having a mortgage that can potentially harm your credit.
Since a mortgage is the single biggest debt that most people carry, the credit rating bureaus pay very close attention to any missed or late payments.
As many homeowners know, a payment that’s late by even a week or two can ultimately end up being reported and can have a big impact on their credit score.
The rating agencies figure if something as important as a mortgage payment is missed, this means a homeowner is potentially having serious trouble paying their debts.
And as we all know, our credit score isn’t so much a measure of our financial health, but of our ability to pay our debt obligations.
“A mortgage can be a benefit and a
potential detriment to your credit score.”
There is another way a mortgage can harm our credit:
Although, I’m happy to say this one is temporary.
Whenever a lender looks into your credit history, this generates a hard inquiry of your credit. The result of too many of these hard inquiries is a hit to your credit score.
As I said, this is usually a temporary impact and should normalize within a few months.
As you can see, a mortgage can be both a benefit and a potential detriment to your credit score.
If you are serious about wanting to keep your score high, then the best way to ensure that is to make your payments on time, every time.
In this way, you get to reap all the benefits of having a mortgage without any of the negative results.
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