How applying for a mortgage will affect your credit score

Your credit score plays an important role in securing your mortgage. Indeed, lenders use it (in addition to your credit report and other criteria) to determine the likelihood that you will repay your home loan on time and in full. But just like any other form of credit, applying for a mortgage can impact your credit score in many ways.

Your credit score could take a first hit when you apply for a mortgage, as the lender will have to open a thorough investigation of your credit file. A serious inquiry (aka “direct pull”) occurs when a lender pulls your credit file from one of the three major credit bureaus (Experian, Equifax, or TransUnion). A thorough investigation is used whenever you apply for a new credit card, personal loan, car loan or any other form of credit, so it is not exclusive to processing mortgages.

A serious request can actually knock a few points off your credit score, whether you end up being approved or denied for a credit card, personal loan, or mortgage.

With mortgages in particular, you’ll likely apply for a home loan from multiple lenders so you can compare your offers. In this case, your credit will not be rung several times. With mortgages, you can get your credit report from additional lenders with no further impact on your credit score as long as you submit additional applications within 45 days of your first credit check.

Even if your credit score takes a hit after mortgage application, you can bump it up by making all your mortgage payments (and other bill payments) on time and in full each month. That’s because payment history makes up 35% of your credit score.

On the other hand, if you miss a mortgage payment or are unable to pay all of a month, it can hurt your credit score. Before accepting your desired mortgage offer, make sure that the interest rate, monthly principal, PMI (if applicable) and other applicable elements of your monthly payment match your budget.

One way to reduce your monthly capital amount is to go for a longer loan term – just keep in mind that a longer loan term usually means you’ll pay more interest over the life of the loan . If you think this suits your needs better, be sure to research lenders who can offer it to you. hunting bank and SoFi both offer mortgage options with loan terms of up to 30 years. And with SoFi, when you lock in a conventional 30-year home loan, you can also get a 0.25% price reduction on your loan. This can potentially help you save a little more money on your mortgage.

Another way a mortgage can positively impact your credit score is by contributing to your credit mix. The credit mix is ​​10% of your credit score, based on Experian. While it’s not the most influential factor in determining your credit score, it can still show lenders that you’re good at handling different types of credit, like a mortgage, credit cards, and loan. automobile. That’s not to say you should apply for a mortgage just to improve your credit mix — you should only take out a mortgage if it really is the best next step for your financial goals.

Consider using a credit monitoring service like Capital One CreditWise® Where Experian to help you monitor your credit to ensure there are no fraudulent or inaccurate marks on your report which could lower your credit score.

Similar to applying for and managing any other form of credit, applying for and managing a mortgage can impact your credit score in different ways. That’s not to say you should be afraid of the impact a mortgage could have on your credit score. Even if your credit score takes a first hit after applying for a mortgage, continuing to adopt healthy debt management habits can help improve your score over time.

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