Does Buying a House Hurt Your Credit?


Whether you’re a first-time homebuyer or a seasoned homeowner, there’s no denying that purchasing a home is a huge financial decision.

buying a house

You’ll likely have to make a down payment and commit to a monthly mortgage payment for 30 years (unless you decide to sell before then). Even so, the obligation should not be taken lightly.

Just from preparing to buy a home, you know that your credit score is an incredibly important number. It determines your eligibility for a home loan, and also plays a major role in determining your interest rate.

The higher your credit score is, the lower your interest rate will be, which can really affect your monthly payment. Hopefully, yours is in top shape when it’s time to buy. However, it’s also important to consider what happens to your credit score after you actually purchase your home.

You might be surprised to find out that buying a home has both positive and negative impacts on your credit scores. Read on to find out exactly what to expect of your credit score when you get a mortgage. We’ll also teach you how to minimize any potential damage that could occur.

Key Takeaways

  • Applying for a mortgage can temporarily lower your credit score due to credit inquiries, but limiting these inquiries to a short time frame can minimize the impact.
  • Taking on a mortgage increases your overall debt, which can initially lower your credit score, but regular, timely mortgage payments positively impact your credit history and mix, boosting your score over time.
  • To maintain strong credit scores after buying a home, monitor your credit reports annually, make timely payments, and keep your other debts, especially credit card balances, low.

How Applying for a Mortgage Affects Your Credit Score

It’s smart to shop around for interest rates from different lenders when you’re looking for a mortgage. Interest rates can vary greatly depending on the lending company and the type of mortgage loan they offer you. However, it’s essential to employ the proper strategy when comparing those offers.

That’s because each time you apply for new credit, whether it’s a mortgage, auto loan, or credit card, a credit inquiry appears on your report. Your credit score drops anywhere between five and ten points.

Unfortunately, if you have an excessive number of credit inquiries, mortgage lenders may think you’re desperate for cash and be reluctant to lend to you. The dip in your credit score reflects this potential risk.

The Benefits of Mortgage Pre-Approval on Credit

So, how can you mitigate this issue when shopping for a mortgage? First, limit the number of lenders you apply to. You can also ask for a pre-approval to find out what interest rates you’d be eligible for. The difference is that there is not a hard credit check performed. Instead, the mortgage lender only does a soft pull, which doesn’t have any effect at all.

You’ll still have to go through the formal application (and hard credit pull) once you decide on a mortgage loan. However, the preapproval process gives you the opportunity to compare offers without any type of commitment.

Multiple Credit Inquiries for the Same Type of Loan

Another way to protect your credit scores from too many inquiries is to limit your loan search to two weeks. When evaluating your credit history, credit reporting agencies realize that consumers want to shop around for different rates to get the best loan. So, if you have several of the same types of inquiries listed in a two-week span, they’ll only be counted as a single inquiry.

Mark your calendar with the first date of your loan application so you can track how long your search has lasted. This will help you keep your credit scores intact. Plus, you’ll also keep yourself on schedule for getting your mortgage in order.

The Effect of Mortgage Debt on Your Financial Profile

Your credit score could also take a hit because of the amount of mortgage debt you have, especially if this is your first time owning a home. Luckily, there is a good side and a bad side to this.

Let’s start with the negative. Since a home costs so much, your level of debt is going to skyrocket. This is true, especially if you’re a first-time homebuyer or someone who just upgraded to a more expensive home.

Think about it: Say your previous levels of debt included a small credit card balance, a student loan, and a car payment, and that came to about $65,000 in debt. If you buy a $200,000 house, you’re nearly quadrupling your level of debt.

Yes, you were approved for the home loan and can afford the monthly mortgage payments. However, that is still a significant number to be added to your credit reports, and your credit history will reflect this change. It’s not going to plummet by any means, but you will notice a decrease.

How Your Mortgage Affects Debt-to-Income Ratios

Another way your new mortgage can influence your access to credit is through your debt-to-income ratio. This isn’t part of your credit score, but it is part of how future lenders analyze your application for credit. Basically, your DTI is how much monthly debt payments you owe versus how much money you earn each month.

Rent isn’t included in your DTI, but mortgages are. So, the next time you go to apply for a car loan or refinance your mortgage, you’ll have to consider how much overall debt you pay each month compared to your pre-tax earnings.

The Positive Impact of Timely Mortgage Payments on Credit

Now let’s get into the positive effects that buying a home can have on your credit score. The first impact is that your credit mix becomes more varied.

This category actually accounts for 10% of your credit score. Therefore, having an installment loan like a mortgage helps more than just having revolving credit like a credit card. 10% may not seem like a lot, but it can help offset some damage caused by the negative side of purchasing a home.

The most important thing you can do to increase your credit score is to pay all of your bills on time. And having a mortgage is a great way to add positive history to your credit report. That’s because while most creditors report negative payments to the three major credit bureaus, many don’t actually report positive payments. So, you’re penalized for negative behavior, but sadly, not rewarded for good behavior.

Mortgage payments, on the other hand, are regularly reported to each of the three credit bureaus: Equifax, Experian, and TransUnion. And since 35% of your credit score is determined by your payment history, on-time payments each month can make a significant difference.

Strategies to Maintain a Strong Credit Score After Buying a Home

Even after you’ve purchased your home, it’s still essential to keep your credit scores in top shape. You never know when you’ll need credit again, and you’ll want to ensure you have access to the best rates. Even if you’re not planning to use new credit for a car loan or personal loan.

You may want to refinance your mortgage in a few years to get a better interest rate, cash out some equity, or take off your mortgage insurance. To do any of those things, you’ll continue to need a strong credit history. Follow these tips to ensure your credit score stays where you want it to be.

#1: Monitor your credit report annually.

You can get free copies of your credit reports each year from This is helpful in several ways. First, it allows you to check to make sure all of your personal and financial information is listed accurately.

More importantly, however, is that it allows you to detect whether someone has fraudulently opened up any type of credit account in your name. Identity theft is a growing concern. Staying on top of your credit history keeps your identity and your finances safe.

#2: Continue to make your payments on time.

It’s vital to your credit history to make timely payments. Even one 30-day late payment can stay on your credit report for years, causing a major drop in your credit score. And the consequences just get worse as the delinquency ages to 60 and 90 days.

It’s easy to get swept away by all the new excitement and responsibilities that come with a new house. Just be sure to keep up with your other financial obligations during that time.

#3: Keep your debt low.

Since you just added a large new mortgage to your credit report, it’s wise to keep your other debts as low as possible, particularly your credit card balances. Try not to exceed 30% of your available balance on any of your cards. If you do, your credit score is likely to fall. Instead, try to spread out your balances across cards while you work on paying them off.

Buying a house does indeed impact your credit score. However, the impact is not so dramatic that buying a house isn’t worth it. After all, the purpose of the credit score itself is to help prove your creditworthiness to lenders so you can borrow money when the need arises.

As long as you can afford your monthly payments, purchasing a house could very well be a wise investment. It allows you to put down roots while growing equity in your home.

Bottom Line

Purchasing a home is a significant financial milestone that can affect your credit in various ways. While it might initially lower your credit score due to inquiries and increased debt levels, it also offers an opportunity to build and improve your credit over time through regular mortgage payments.

The key is to manage your debt-to-income ratio effectively and to maintain good credit habits. This includes monitoring your credit reports, keeping debt levels under control, and ensuring timely payments. By doing so, you can enjoy the benefits of homeownership while nurturing a strong financial standing.

In summary, buying a house is more than acquiring property; it’s a strategic step in building a secure financial future. With thoughtful management, the journey to homeownership can enhance your credit profile and open doors to future financial opportunities.

Frequently Asked Questions

Can a mortgage impact my ability to get other loans?

Yes, a mortgage can impact your ability to get other loans. The significant debt from a mortgage can increase your debt-to-income ratio, which lenders consider when evaluating your creditworthiness for additional loans.

What happens to my credit score if I miss a mortgage payment?

Missing a mortgage payment can negatively affect your credit score. Payment history accounts for 35% of your credit score, so even one late payment can cause a noticeable drop. It’s crucial to make all payments on time to maintain a strong credit score.

Is it better to pay off my mortgage early to improve my credit score?

Paying off your mortgage early can positively impact your credit score by reducing your overall debt. However, keeping the mortgage and making timely payments can also benefit your score by contributing to a positive payment history. Consider your financial goals before deciding to pay off your mortgage early.

Will refinancing my mortgage affect my credit score?

Refinancing your mortgage can affect your credit score because it involves a hard credit inquiry. Additionally, opening a new account can temporarily lower your score. However, the long-term benefits of a lower interest rate and potentially lower monthly payments can outweigh the short-term impact.

How long does it take for a mortgage to positively impact my credit score?

A mortgage can start to positively impact your credit score as soon as you begin making timely payments. Consistently paying on time will gradually improve your score, especially if you maintain good credit habits across all your accounts.

How does the size of my mortgage affect my credit score?

The size of your mortgage affects your credit score by increasing your total debt. A larger mortgage means more debt, which can temporarily lower your credit score. However, as you make consistent, on-time payments, the positive impact on your credit history can help improve your score over time.

Lauren Ward
Meet the author

Lauren is a personal finance writer who strives to equip readers with the knowledge to achieve their financial objectives. She has over a decade of experience and a Bachelor's degree in Japanese from Georgetown University.