October 2nd, 2018 8:28 AM by Jackie A. Graves, President
are constantly warning consumers to keep their credit
score in tip-top shape if they’re planning to purchase a home
in the near future. The higher your credit score, the more likely you are to
get the best mortgage rates.
Once you have the mortgage, however, how will it affect your
credit score going forward?
Immediately following your new mortgage, expect your credit to
suffer. Your credit score is a numerical representation of your ability to pay
back a debt obligation. When you take on the largest loan that most consumers
will ever have, your score goes down until you prove that you have the ability
to pay back the loan – and that you will actually make the payments you
Because of this temporary lowering of your score, you may find it
difficult to get other loans or get a loan with the credit terms you would
expect. Plan to wait at least six months before applying for any loan of
How do you bring your score back up to its pre-mortgage level? By
making on-time payments every time.
Don’t sign up for those services that say they can raise your credit score
fast. Simply make your mortgage payments – and all other payments, for that
matter – on time. As you prove that you’re a responsible borrower, your score
will naturally rise.
According to FICO, the company in charge of compiling your
credit score, 35% of your score is payment history.
Pay your bills on time and in full. If your busy lifestyle
sometimes forces bill paying lower on your priority list, set up an automatic
payment through your bank so you never forget. See Best Ways To Repair
Your Credit Score for more advice.
Know the fundamentals. Your credit
report measures your ability to pay back debts. You only earn
so much money so keeping your amount of debt in good proportion to your income
is essential. This is called your debt-to-income
Keeping it no higher than 36% is considered optimum with no more
than 28% going to your mortgage. If you know you will purchase a home in the
near future, don’t take on other debt obligations. Keep your debt-to-income
However, do continue to build your credit history. A little credit is better than
no credit as far as your credit score is concerned. And of course, paying your
mortgage on time is good for your credit history.
The calculation of your credit score is a bit of a mystery. FICO
publishes general guidelines to help consumers understand their score, but
nobody knows the specifics of the calculation. However, the types of loans you
have play a role in your score.
Think of a mortgage as the pinnacle of consumer credit. If you can
qualify for a mortgage you’re considered a trustworthy borrower. If your credit
report contains nothing but a bunch of credit card loans, your score won’t be as
high. This mix of revolving debt to installment debt (your mortgage) accounts
for about 10% of your score.
But, as Spider-Man's uncle once told him, “With great power comes
great responsibility.” If you pay a credit card a little late, the effect on your
score won’t be massive. If you don’t pay your mortgage on time, expect your
credit score to reflect that. If it happens, make the payment as quickly as
possible. If it’s a little late, your mortgage company may not report it to the
Here’s the good news: As long as you pay your mortgage on time
every time, the debt you take on for a home is considered responsible debt. And
try to avoid making any other major purchases within six months of taking on a
mortgage, since your credit score will likely drop from the process of getting
the loan. A history of responsibly paying your mortgage and other bills should
soon bring your score back up. For more information, see Four Ways To Protect
Your Credit Score.
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