Buying a house requires a considerable financial investment. Most people do not have the option to pay for the entire cost in cash, and end up taking out a home mortgage loan. While this is a relatively standard practice, it can play a role in impacting your credit. Below, we’ve explained this matter in detail.
3 Ways Home Mortgage Loans Can Impact Your Credit
When you take out a mortgage loan, you will likely see some changes to your credit. It’s important to remember that this is entirely normal. There is no reason to panic. In fact, your credit may benefit in the long run.
That being said, it can be helpful to know what to expect. Here are some of the ways that taking out a mortgage could impact your credit.
1. Temporary Impact on Credit Score
Your credit score may be affected when you take out a home mortgage loan. However, it’s important to keep in mind that this is only temporary so long as you stick to the repayment terms. Pay your mortgage on time and follow all the loan terms. Your credit score will climb back in around five months.
2. Your Credit Will Be Diversified
Your score is also affected by the kinds of credit you use. This includes auto loans, credit cards, or mortgages. But the most significant impact is made by timely payments of these loans.
Credit cards are basically reusable or revolving credits, while mortgages come under the category of installment loans. When you take out a mortgage loan, you are diversifying your credit profile.
Typically, the more credit diversity you have, the better your score will be.
3. The Effect on Future Loans
As stated previously, taking out a mortgage loan may cause your credit to drop by a few points. While your credit will recover if you make payments on time, it’s important to realize that having a lower score could affect the rate you pay on any loans or credit cards you take out in the meantime.
If you’ve recently taken out a mortgage, you may want to hold off on any major purchases for a few months. If you can, wait a while before you take out a car loan or get a new credit card. This will give your credit some time to recover and can help you get a better rate.
Mortgage loans can impact your credit score in both good and bad ways. However, most negative impacts are only temporary. It all depends on how you handle your mortgage, which includes making payments on time. If you make smart decisions, your credit may benefit in the long run!
We’re here to help! If you’d like more information on home loan options or have questions about how your mortgage loan will impact your credit, please do not hesitate to reach out. Call our office today to speak to an expert!