Impact of New Mortgage on Credit Scores

Taking out a mortgage to purchase a house does have a beneficial effect on the credit score.  The credit scores are most often known to improve when you take out a new mortgage.  However, the effect on the credit score may not be instant.  In fact the credit scores may dip before increasing.  This is because you undertake a large amount of debt and it is still unclear as to how you will handle the repayment of the loan.  The calculation of the credit scoring model takes several factors into account one of which is the history of repayment on any loan.  Home ownership is the great responsibility.  It represents financial and social stability which is an important factor for determining lending risk.  Once you have made the first few payments on your mortgage on a regular basis you can expect your credit score to improve.

Creditors view the home ownership as added security for extending credit to the consumer.  It is also possible to use the home as a collateral to get other loans.  Creditors are willing to give loans when you use your home as a collateral because it reduces their risk.  However using a home as a collateral should be done after exercising a great amount of thought as any kind of problem with the repayment of the loan in the future could make the lender use the fourth closure on your home to recover his money.

The bottom line is that when you take out a mortgage to purchase of home you can expect your credit scores to improve.

Leave a Reply