Experts stress the importance of maintaining good credit before you apply for a mortgage. But after you get that mortgage and close on a new house, what happens to your credit score?
Keep working hard on your credit score
It takes years of acquiring and faithfully paying off smaller amounts of debt to build the solid credit score you need to qualify for a mortgage. But right after you land that loan, your rating score will likely take a hit of about 15 points.
To understand this drop, consider the elements of your credit score that your mortgage affects. First, the three credit agencies — Equifax, Experian and Transunion — look at your overall indebtedness, among other factors, to judge your ability to pay. Because a mortgage is the biggest debt most people ever take on, it obviously increases your indebtedness. Second, your payment history is responsible for about a third of your credit score. Credit agencies want some time to see that you are able to fulfill the responsibility of making timely monthly payments on your mortgage. Because of the size of your debt, your mortgage payment history does more to strengthen or degrade your credit score than your history on credit card and other debts.
Because of these factors, it takes six months to about a year after closing on a new home for your credit score to recover. You can help the process by making timely payments on all your debt and avoiding major purchases, such as an expensive car or boat, for about six months after closing on your mortgage.
Keep thinking ahead
If you are like most people, you will own several homes over the years. Your payment history on each previous mortgage will affect your credit score and thus your ability to get future mortgages. And it’s important to remember that you’ll take on other debts in the future, such as auto loans and credit card purchases. Protect your credit score for the future by striving to charge on cards only what you can afford to pay off in full each month. With auto loans and other forms of credit, pay the monthly amount due in full and on time.