If you have ever entertained the idea of buying a home for yourself and your family, a land, or any other type of real estate, you have more than likely considered a mortgage. There is quite a negative social stigma surrounding the term mortgage, and many people that strive to have a high credit score have a particular question in mind.
Is a mortgage good for your credit score? Despite decreasing it initially, a mortgage is good for your credit score in the long term, provided all the payments are processed as agreed. If you pay your mortgage on time, you will enjoy better credit history and improved credit mix, accounting for a better credit score.
Although the topic may seem pretty straight to the point, there are many factors to consider when taking out a mortgage.
To make an informed decision based on your circumstances and needs, you will need hours upon hours of research. Because of this, I created this article to give you insight and put you in the best situation to keep your credit score high.
Let’s dive into this vast topic already!
Is Mortgage Good for Your Credit Score?
As it turns out, the somewhat negative reputation of mortgages is undeserved and mainly comes from the fact that the majority of people consider a loan a disadvantage. Contrary to popular beliefs, taking out a mortgage has its benefits and will increase your credit score over time.
Before taking advantage of this benefit, you will have to deal with a slight hit on your credit score. I know that this statement will make you freak out, but the reality is that such a decrease is to be expected. You just took on the largest loan you will probably ever have, and it is necessary to prove your ability as a trustworthy borrower.
You are probably wondering how to get back to your pre-mortgage credit score. Being a reliable payer and taking care of the due payment each time every time will boost your credit score in no time. According to FICO, the payment history is the most influential factor in determining your credit score, so make this obligation your top priority.
The payment history plays a substantial role in your FICO Score (around 35%), so it is safe to say that keeping track of your mortgage payments will get your pre-mortgage score back sooner rather than later. However, is there any other way to speed up the process?
Although not as important a factor as payment history, credit mix can give your credit score a small yet decisive boost, which can be helpful in the long run. The more diverse the types of loans you have are, the better the chances of increasing your score are. The credit mix accounts for about 10% of your score.
Up until now, I only assumed that each payment gets processed on time every time, which may be unreasonable. Our lifestyle may force us to take care of some previously unaccounted for bills. How will some late mortgage payments affect our credit score?
Provided that being late on the monthly payments doesn’t become a tendency, you have nothing to worry about. In such situations, you need to communicate with your lender to manage any negative consequences.
Delays may result in additional penalty fees that are obligatory and a lowered credit score if the issue isn’t taken care of on time.
Prioritize paying the mortgage first, and you won’t have to deal with any of this! Here are some ways to lower your mortgage payments.
How Long Will It Take for My Credit Score to Go Up After Taking Out a Mortgage?
While there are many variables in increasing your credit score, research from FICO has shown that it may take between 3 and 6 months, provided you pay your mortgage on time.
If you tend to be late on some of the due payments (30 to 90 days), the recovery time will be substantially longer, and it may take up to 9 months for your credit score to get back up.
As I already mentioned, there is no exact strategy that will allow you to predict accurately when exactly your credit score will rise back to the pre-mortgage levels. Your safest bet is handling each payment on time and not missing a due date.
How Much Will My Credit Score Drop By After Taking Out a Mortgage?
You are probably tired of hearing this, but there isn’t a specified number that your credit score goes down by after taking out the mortgage.
According to several studies, most consumers report a drop of about 15 points, which isn’t all that substantial if you think about it. It will rise eventually in just a couple of months, so it isn’t that big of a deal.
However, a small number of consumers have seen their credit score drop by about 40 points. This fact further justifies my statement that there isn’t a specified way to predict the drop.
Can I Apply for Another Loan After Taking Out a Mortgage?
Unfortunately, you will have to wait at least half a year before even thinking about applying for another loan of significance. Any small ones should be fine, though.
Taking out a mortgage may seem like a risky move, a bad idea, a stressful decision. Giving up a healthy credit score seems inevitable.
Once you start digging more into it, it turns out that this sort of financial commitment is more manageable than you previously thought. If you are a reliable payer and handle your finances the right way, you will take care of the mortgage with no significant difficulties.
Taking care of payment history and credit mix will provide you with a few benefits, the most important of which is a healthy increase in your credit score. What’s more, an improved credit score will allow you to think bigger and to be more confident in any future endeavors.
Getting the type of real estate you desire and the opportunity to grow even more in the future is a dream that requires just a little courage in your own ability to handle a mortgage.