If you’re looking to buy your first home, you may have some reservations about the impact such a massive purchase will have on your credit score. Home prices are higher than ever and are expected to continue to rise between 2% and 6% over the next few years. This means the home loans you take out are going to be even larger than you may have anticipated, and we all know how large loans can have a negative effect on your credit score.
Well, we’re here to say: don’t worry! We’ll walk you through what you’re most likely to see reported on your credit report and how to manage the change.
Expect A Drop
First and foremost, your credit score is going to take a bit of a dive. This is entirely normal as you’ve just taken on the biggest loan most consumers will ever have; until you prove you can pay it back, your score isn’t going to be looking too hot. As a result, you should plan to wait at least six months before applying for any of the other types of loans available. It’s important to remember that this dip is temporary! While it may affect your life for a short amount of time, consistent monthly payments will guarantee a return to normal.
Bringing It Back
The best way to boost your credit score back up to its healthy, normal number is to treat it like any other debt: pay it on time and in full every month. Ignore those “raise your credit score quick” schemes and take the slow and steady (and trustworthy) route — as you prove you’re a responsible borrower, your score will naturally rise with time.
In fact, the addition of a mortgage to your credit history (provided you’re able to make those monthly payments) can actually improve your score since the debt taken on by individuals through their mortgage is considered “responsible” debt; according to FICO, the company in charge of compiling your credit score, 35% of your score is related to your history. If your report shows nothing but credit cards, your score won’t be as high, but if you prove you’re a reliable borrower, you may find your score boosted after that temporary dip.
Best of all, those with perfect or near-perfect credit are even eligible to refinance their loan in order to lower their mortgage rates. Since your credit score affects so many aspects of your life (and nearly all of the financial ones), the best way to handle the weight a mortgage places on it is to establish yourself as a financially responsible individual.
