Buying a home doesn't improve your credit score. The acts of buying and owning a home do not affect your credit rating because your personal assets are not factored into credit rating calculations. If you apply for a mortgage to buy your home, that can affect your credit score. In general, a mortgage should increase your credit, but it can cause a decline at first.
When you apply for a mortgage, the lender will check your credit to determine if they approve it. This triggers a robust credit consultation, which may temporarily lower your credit score by some points. While buying a home can help your credit improve over time, it can initially have a negative impact on your score. When your mortgage lender checks your credit, they leave a “credit check” on your credit report.
While all credit inquiries received within a 30-day period count as one inquiry, each credit inquiry credits your credit score of five to seven points. If your mortgage lender draws your credit history a second time before closing the loan and it's been more than 30 days since the last consultation, your credit score can drop by up to 14 points. The length of your credit history constitutes up to 15% of your FICO score. Since mortgage loans are long-term, they become an excellent boost for this part of your rating over time.
Every month you spend at home on a home loan should improve your credit. Another tactic to help convince lenders that it's a good risk, Torelli-Sauer says, is to keep credit accounts open after you've paid them, even if you don't plan to use them anymore. Even if you cancel your credit card or line of credit, don't close it. The longer it appears on your credit report, the more it will help your credit score.
If you've applied for a mortgage loan, you've probably been advised not to make any financial moves until your mortgage has been approved, including taking on more credit card obligations, quitting your job, or buying a car. But once you've achieved that goal, you may wonder what happens to your credit after you buy a home. A home equity loan is like a HELOC, but it's a lump sum borrowed against the home's equity, not a line of credit. However, there are some basic rules to keep in mind when analyzing what happens to your score after buying a home.
USDA loans, which are offered to low- and moderate-income borrowers who buy homes in rural and suburban areas, also don't require a certain credit score. When you consider buying a home and going to get a mortgage, the interest rate they give you will determine how much you pay in interest per month and for the life of your loan. If you're in the process of buying a home, you know how important it is to have a strong credit report to get financing from a lender.