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Credit Score Boost: How Mortgages Can Help

A mortgage is a loan used to finance the purchase of a home or other real estate. The mortgage provides the borrowing power to purchase a more expensive property than one could otherwise afford. Mortgages are secured with collateral – in this case, the home itself – which allows lenders to offer more favorable interest rates than other types of loans.

A credit score is a number calculated from a person’s credit history that lenders use to assess creditworthiness. Credit scores range from 300 to 850, with higher scores indicating a lower risk of default. Having a higher credit score can mean better terms for loans and credit cards.

How Does a Mortgage Affect Your Credit Score?

Taking out a mortgage can have both positive and negative effects on your credit score. 

1. Positive Effects of a Mortgage on Your Credit Score

  • On average, a mortgage accounts for about 30% of your credit score. (Source: Experian) Having a mortgage shows lenders that you can responsibly manage a long-term loan, which can improve your creditworthiness.
  • Making consistent and on-time mortgage payments shows lenders that you reliably pay debts, which has a positive impact. Making on-time mortgage payments is the best way to improve your credit score.(Source: FICO) 
  • Having a mortgage diversifies your credit profile by adding an installment loan. This mix of credit types can improve your score compared to only having credit cards.

2. Negative Effects of a Mortgage on Your Credit Score

  • When you first apply for a mortgage, the hard inquiry causes a small, temporary drop in your score. Too many inquiries can negatively impact your score.
  • Taking on a mortgage lowers the average age of your accounts, which can slightly ding your credit score. Older accounts improve your length of credit history. 
  • A single late mortgage payment can drop your credit score by up to 100 points. (Source: VantageScore) Consistently missing payments severely damages your score.
  • If you cannot keep up with payments, the lender may foreclose on the home. Foreclosure can have a devastating impact on your credit score, dropping it by up to 250 points. (Source: Credit Karma)

Can Paying Off a Mortgage Improve Your Credit Score?

Paying off a mortgage generally won’t improve your credit score immediately. This is because your credit report will still show the closed mortgage account for up to 10 years after it is paid off and closed. 

However, no longer having a mortgage does have benefits:

  • Your monthly debts are reduced, improving your debt-to-income ratio. This gives you more borrowing power for future loans.
  • With no mortgage payment, you can put more money towards paying off other debts. This can improve your credit utilization ratio. 
  • Not having a large monthly mortgage bill means you have more money available to make other payments and loans reliably.

So while paying off a mortgage doesn’t directly lead to a better credit score, it sets you up for credit improvement in the long run.

Can Not Paying a Mortgage Hurt Your Credit Score?

It can take up to 7 years for your credit score to recover from a foreclosure. (Source: Equifax) Not paying a mortgage has severe negative consequences:

  • Missing payments damages your payment history, which makes up over one-third of your credit score. 
  • Being behind on payments gets reported to credit bureaus and stays on your credit report for 7 years.
  • Foreclosure is the most damaging of all, as your home is repossessed. Foreclosure remains on your credit report for 7 years.
  • Collections activity from missed mortgage payments also hurts your credit utilization and loan balances.
  • A foreclosure can drop your credit score by up to 250 points. This damage to your credit score can persist for years.

How to Maintain Good Credit While Having a Mortgage

There are steps you can take to keep your credit score healthy while paying down a mortgage:

1. Regularly Make Payments On Time

Consistently paying your mortgage on time or early is the most effective way to keep your credit score high. Set up autopay or automated reminders to avoid accidental late payments.

2. Keep Other Debts Low

Don’t let your other debts like credit cards get out of control. High balances and credit utilization will counteract positive mortgage payment history.

3. Don’t Apply for New Credit Frequently

Each application causes a hard inquiry on your report. Limit applications to only necessary accounts. Space out applications by six months to a year.

4. Monitor Your Credit Report Regularly

Check all three credit reports annually for errors or fraudulent activity that could tank your score. Dispute any inaccuracies with the bureaus. 

5. Seek Professional Help if Needed

If money is tight, contact your lender about mortgage assistance programs. Consult a credit counselor or housing counselor for guidance.

Should You Get a Mortgage to Improve Your Credit Score?

In most cases, the risks outweigh the potential rewards of getting a mortgage just to build credit. While responsible mortgage borrowing helps, it is an expensive long-term debt obligation.

If you cannot comfortably afford the down payment and monthly payments, taking on a mortgage is financially risky. Defaulting on the loan would severely damage your credit.

If you have a good credit score before you get a mortgage, you will likely qualify for a lower interest rate. A lower interest rate can save you thousands of dollars over the life of your mortgage. (Sources: NerdWallet, Bankrate)

There are safer ways to build credit discussed below. Get a mortgage when you are financially ready to purchase property, not just to boost your credit score.

What are the Alternatives to Improve your Credit Score Without Getting a Mortgage?

Some options to raise your credit score without taking out a mortgage include:

  • Pay off any existing debt to lower your credit utilization ratio. Keep revolving balances low.
  • Become an authorized user on someone else’s credit card – their good history can raise your score.
  • Open a secured credit card if you cannot qualify for an unsecured card. Make small purchases and pay in full.
  • Apply for a credit-builder loan and make on-time payments to establish positive history. 
  • Sign up for credit monitoring services to track your score and get personalized tips for improvement.
  • Dispute any errors on your credit reports so they do not unfairly lower your score.

With responsible credit management, you can steadily raise your credit score without taking on expensive long-term mortgage debt.


Mortgages provide an opportunity to demonstrate responsible loan usage, but also incur risks. While paying a mortgage builds positive payment history, making late payments or defaulting is extremely damaging. Those with already fair/good credit stand to benefit most from a mortgage for boosting their score. For large loans, the interest rate reduction pays off over time. But alternatives like credit cards allow building credit without the burden of a mortgage. Get a mortgage when financially ready to buy property, not solely to raise your score. With prudent borrowing, timely payments, and credit monitoring, you can achieve an excellent credit rating.