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The Impact of Home Ownership on Your Credit Rating


If you’re in the market for a home, you’ve probably spent some time cleaning up your credit. After all of that hard work, you may wonder what impact a mortgage will have on your credit rating.

In most cases, a mortgage WILL impact your credit. Below, we outline what that impact will look like, and how you can successfully secure your new home loan and keep your score in the safe zone.

How Shopping for a Mortgage Affects Your Credit

Your credit rating is one of the largest factors used to determine whether or not you get a mortgage and what your interest rate will be.

Lenders will need to pull your credit report in order to get all of the necessary information—this is known as a credit inquiry. Typically, a credit inquiry will knock your credit score down by a few points.

But, if you keep all credit inquiries within the same 30-day window as you’re shopping for a home, all pulls will count as a single inquiry, lessening the overall impact on your rating.

Otherwise, spreading your mortgage rate out over the course of a few months can add up and may hurt your credit significantly.

How Getting a Mortgage Affects Your Credit

Total debt is a significant contributor to your credit rating. By taking on a mortgage, you will be adding a large debt to your credit.

Mortgages are considered installment debt (other examples include student loans and vehicle loans). Generally, installment debt is looked upon more favorably than revolving debt, such as credit cards.

In the short term, your credit score will likely drop. But in most cases, with regular payments, your credit will be back to normal within 3 to 6 months after getting your mortgage.

How Paying Your Mortgage Affects Your Credit

Roughly 30 to 35% of a credit score is based on payment history. Even with a large debt like a mortgage, making your payments proves to lenders that you can afford your home.

If you always make your payments on time, you will start to see your credit rating begin to climb. Set up automatic bank drafts to guarantee you’re never late paying your mortgage.

In addition to the impact of a good payment history, paying your mortgage will decrease your overall loan amount over time, which will also help to improve your credit rating.

The Takeaway

Although a mortgage will lower your score slightly in the beginning, home ownership can be a great step toward a financially secure future. If you know how much home you can afford and avoid late payments, your credit will become stronger than ever.

Work with a local mortgage specialist

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