You need to have a good credit score to qualify for a mortgage and to get the best interest rates. As such, it is crucial to keep your score in good shape if you intend to purchase a home on a mortgage in the near future. However, after getting the mortgage, what will be the impact of the home loan on your credit score? Well, just like any other financing option, the mortgage will affect your credit score in a few ways.
Your credit score will drop immediately
Shortly after the approval of your mortgage, your credit score will drop. The credit score is a numerical representation of a debtor’s ability to pay their obligations, and it always dips when taking a loan, and it is the same case with mortgages, which are probably the biggest loan you will ever take. The score plummets after taking a loan until you prove that you can repay the loan and that you meet the obligations as you committed. Due to the short term decrease in your score, you may not qualify for other loans as you would expect or get credit products at the terms that you would anticipate given your initial score. It is advisable to plan to not seek credit, especially a significant amount, for at least six months after getting your mortgage.
Rebuilding your score
So, your score has dropped after getting your mortgage. How do you get it back to the pre-mortgage level or even higher? You need to ensure that you pay your mortgage payments on time every time as it’s supposed to be paid. Also, pay any other payments you should pay on time. With continuous payments and proving that you are a responsible and creditworthy borrower, your credit score will start rising again.
Your payment history contributes up to 35% of your score, so timely payment is crucial to build a good history and improve your score. But there are some debtors who have hurt their score significantly and need more help aside from timely payment. Such debtors should engage experts in repairing and boosting their scores, and they will take them through how credit boosting works and offer them the services that they need.
Getting a mortgage may improve your credit mix
Besides your credit history, your credit mix influences your score. There are other factors that also contribute to your score, but the process of computing your score is somehow a mystery. The fact you have a mortgage on your credit report could carry more weight than having a number of credit card payments. On the flipside, defaulting or late payment of mortgage installment hurts your score more than if it were credit card(s), so mortgages have a greater positive and negative effect depending on your repayment habits.
In the beginning, taking a mortgage will make your credit score drop a bit. You should not worry since this is expected, but it is a temporary thing. The most important thing is to continue paying your installments on time and your score will get back to the pre-mortgage level after a few months. To avoid late payments or defaulting altogether, you can set up automatic payments from your bank account. With everything going well, your score should be even higher than it was before the mortgage.