How buying a home impacts your credit depends on how you managed your credit throughout the lending process and how you deal with your mortgage payments after you become an official homeowner.
How Applying for a Mortgage Affects Your Credit
When you decide you want to buy a home, your credit plays a big role in the loan approval process. If you’re thinking about buying a home and want to see where your credit currently stands, the free Credit Report Card will give you two credit scores that are updated every month and a grade for each of the major credit scoring factors so you can understand what’s impacting your scores.
You want to make sure your credit is in great shape when you apply for a mortgage since better credit scores will qualify you for better interest rates, which can save you a lot of money.
When you apply for a home loan, the lender will do a hard inquiry into your credit, which creates a small and temporary ding to your credit scores. Luckily, if you’re trying to shop around for the best interest rates at different banks, you can prevent multiple hard inquiries by applying to all of the lenders in a short time period. Credit scoring models recognize that you’re applying for a loan and only consider these applications as one inquiry.
How You Pay Your Mortgage Bills
Your payment history accounts for 35% of your credit score. Making your mortgage payment on time each and every month is a good way to build up a positive payment history.
On the flip side, if you miss a mortgage payment your credit score will drop significantly. So do everything you can to stay on track with your mortgage payments.
A Good Addition to Your Credit Mix
Taking out a mortgage adds a significant installment loan to your credit file, and this is good for your mix of credit, which accounts for 10% of your credit score. A good credit mix indicates you can responsibly manage revolving credit accounts such as credit cards and installment loans such as home and auto loans.
Find Out Where You Stand
You can check your credit scores each month using Credit.com’s free Credit Report Card. This completely free tool will break down your credit score into sections and give you a grade for each. You’ll see, for example, how your payment history, debt and other factors affect your score, and you’ll get recommendations for steps you may want to consider to address problems. In addition, you’ll also find credit offers from lenders who may be willing to offer you credit. Checking your own credit reports and scores does not affect your credit score in any way.