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Written by
Allison Martin
Allison Martin is a contributor to Bankrate covering personal finance, including mortgages, auto loans and small business loans. Martin’s work began over 10 years ago as a digital content strategist, and she’s since been published in several leading outlets, including The Wall Street Journal, MSN Money, MoneyTalksNews, Investopedia, Experian and Credit.com. Martin, a Certified Financial Education Instructor (CFE), also shares her passion for financial literacy and entrepreneurship with others through interactive workshops and programs.
Edited by
Troy Segal
Troy Segal is a senior editor for Bankrate. She edits stories about mortgages and home equity, along with the finer financial points of owning and maintaining a home.
Reviewed by
Jeffrey Beal
Jeffrey L. Beal, president of Real Estate Solutions, has 40 years' experience in multiple phases of the real estate industry.
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Does buying a house hurt your credit? It all depends on the timing.
When you get a mortgage to buy a home — and as you pay it down over time — there will be some negative impact on your credit score: You’ve just assumed a huge debt, after all.
However, your credit score can always change, increasing or decreasing depending on the time frame, your other debt and how you manage your mortgage and other debt payments.
Let’s look at home loans’ impact on credit scores from beginning to end: how applying for a mortgage, how having a mortgage, and how paying off your mortgage affects your credit score.
Applying for and receiving a mortgage loan might create a brief, temporary dip in your credit score as lenders are inquiring about your credit history and as your overall debt increases, but this is nothing to be afraid of. — Tabitha Mazzara, Director Of Operations At Mortgage Bank Of California (MBANC)
When you apply to get preapproved for a mortgage, the lender typically pulls your credit report. This action registers as a hard inquiry, which slightly lowers your credit score for a brief period.
Not to worry, however, if you’re applying for preapprovals from several different lenders. The credit bureaus assume you’re shopping around for the best mortgage — as you should — and that you’re only going to go with one lender. So, all mortgage-related inquiries made within a certain window get grouped into a single inquiry, minimizing their impact.
Different lenders use different scoring models, which can affect the length of this window. For FICO scores, the most prevalent model, this window is 45 days. VantageScore, an alternative scoring model preferred by some lenders, such as SoFi, uses a rolling two-week window. This means multiple applications will count as a single inquiry as long as there are no more than two weeks between each application.
If you’re concerned about changes to your score as you compare loan offers, consider getting prequalified instead of preapproved. A prequalification usually only counts as a soft inquiry on your credit report, so it won’t affect your score. It can help determine your approval odds, how much house you can afford and the rates you might qualify for. But do confirm with your lender whether its prequalification process involves a hard pull — some lenders use the terms “preapproval” and “prequalification” interchangeably.
Learn more: What credit score do you need to buy a house?Your score will likely increase over time as you start timely mortgage payments. Here’s why:
If you decide to refinance your mortgage, your credit score could drop temporarily due to another hard inquiry on your report — just as it did with the original mortgage application. It could also dip because you’ll be paying off your existing mortgage with a new one, potentially shortening the average age of your credit accounts. However, your score should start to increase again once you begin making payments on the new loan.
Paying off your mortgage is something to celebrate. But it can impact your credit since you’re no longer managing significant debt and your “mix” isn’t as varied.
“Eliminating the mortgage will decrease the ‘variety pack’ the [credit] bureaus like to see,” Mazzara says. “But the reduction [in your score] should be small — far smaller than the impact of being 30 days late, for example.”
Life happens, and so can financial hardship. Unfortunately, if you miss a mortgage payment, our credit score can take a significant hit. Late payments will linger on your credit report for up to seven years, with the impact diminishing over time. This can make it much harder to obtain credit, including another mortgage, in the future.
“If you are more than 30 days late on a payment, that will dent your score considerably, and a foreclosure will really send it into a tailspin,” says Mazzara. “It’s a very serious matter for the credit bureaus, so avoid this like the plague.”
Be mindful that most mortgage lenders offer a 15-day grace period before assessing a late payment fee. As soon as you sense trouble with making payments, contact your lender or servicer to discuss your options.
Want to improve your credit score and your odds of getting approved for a mortgage — and a better interest rate on the loan? Follow these best practices:
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.
A mortgage can increase your credit score in the long term if you consistently make on-time, full payments. Doing so demonstrates that you can responsibly manage your obligations, building up a solid record and credit history.
Your credit score shouldn’t take more than a year to recover after getting a mortgage, assuming you make all of your mortgage payments on time. Getting preapproved or applying for a mortgage usually only temporarily affects your score.
Ideally, you should refrain from borrowing more until your credit score rebounds so you’ll qualify for the best interest rates. The time it’ll take depends on your current credit profile, but count on at least a year or so, especially if you’re considering a refinance. This waiting period gives existing credit inquiries enough time to drop off your report or otherwise cease impacting your score. It also gives lenders a chance to evaluate how you’re managing your new mortgage.
Typically, mortgage lenders look at the last six years of your credit history before making a decision on whether you give you a loan. That means anything that happened before then will not be assessed in their decision, including bankruptcy.
Arrow Right Contributor, Personal Finance
Allison Martin is a contributor to Bankrate covering personal finance, including mortgages, auto loans and small business loans. Martin’s work began over 10 years ago as a digital content strategist, and she’s since been published in several leading outlets, including The Wall Street Journal, MSN Money, MoneyTalksNews, Investopedia, Experian and Credit.com. Martin, a Certified Financial Education Instructor (CFE), also shares her passion for financial literacy and entrepreneurship with others through interactive workshops and programs.
Troy Segal is a senior editor for Bankrate. She edits stories about mortgages and home equity, along with the finer financial points of owning and maintaining a home.
Jeffrey L. Beal, president of Real Estate Solutions, has 40 years' experience in multiple phases of the real estate industry.
