Consumers are continuously being warned by their financial advisors to keep their credit score high if they aim to acquire a home in the future. People with high credit scores are more likely to receive the best mortgage rates. However, the credit score is affected once someone has a mortgage.
The Initial Lowering of the Credit Score
Consumers should expect their credit score to suffer immediately after getting a new mortgage. A person’s credit score is a number between 300 and 850. It shows their creditworthiness or their ability to pay back a debt. Mortgage companies such as Altrua Financial strive to give their consumers better lower mortgage rates by discounting, helping them pay back the loans efficiently, hence increasing their credit score. Usually, the score goes down when a person takes on a large loan and will only go down when they prove that they can pay it back and that they are making payments as they had promised.
The temporary lowering of someone’s score may lead to difficulty in securing other loans or getting a loan with credit terms that they would want. It is best to wait for some months up to half a year before applying for a large loan.
Pay on Time
The best way to bring the credit score up is by making payments on time always. Some services promise to raise someone’s credit score quickly. These should be avoided. The only simple way to raise the score is to make the mortgage payments and all the other payments on time. The credit score naturally rises when one proves that they are responsible borrowers.
An individual should pay their bills in full and on time. Sometimes, due to the day-to-day busy lifestyle, the payment of bills becomes overlooked. It is best to set up an automatic bill payment system with the bank so that it is never late.
Effect of Mortgage on Credit Score
The credit report measures someone’s ability to pay back his or her debts. A person needs to keep their income and debt proportional, otherwise known as the debt-to-income ratio. Keeping this ratio at 36% or lower is considered optimum with a limitation of 28% going to a mortgage payment.
If someone is planning to acquire a home, then he or she should not take on other debt obligations. Keep the debt-to-income ratio low.
However, as far as the credit score is concerned, having a little credit is better than not having any. Paying the mortgage on time is great for someone’s credit history.
Mortgages Can Improve Your Credit
If someone’s credit report contains too many credit card loans and mortgage loans, the score is not high. However, if someone pays their credit card a little late, their credit score is not that high, but if they do not pay their mortgage, they should expect a dent in their score, affecting whether they qualified for other loans. They should make their payments as quickly as they can, although if it is a little late, the mortgage company may not report it.