Mortgage Guru

How Does A Mortgage Affect Your Credit Score?

credit score

Quite simply, our credit score is what holds our future potential for lenders to decide how good, or bad, we are as far as credit risk is concerned. It means that if we have a poor credit score, we might not stand a chance for a loan when we next apply, or if ever we are then we might have to bear higher APR – meaning we will have to shell out a fortune over the years. A credit score can be explained as a numerical representation of one’s ability to pay back a loan or debt or an obligation.

Most of us while buying a house or a property, can afford to pay the full amount in one go. we generally, opt for mortgage loans. Alike all other lines of credit, mortgage loans are also called for on our credit report. It might seem uncanny but is a good thing, because, if you pay as agreed, it can help you build a healthy credit score.

However, initially after getting approval and sanction of a mortgage loan, your credit scores may dip considerably. It so happens because when you take a mortgage loan (one of the biggest loans that you may ever take), your scores go down till the time you prove that you are a capable person and can pay back a loan.

How can a mortgage affect your credit?

How credit scores are calculated is still a mystery for many, but the type of loans you take do play a role in your credit score. If you default or delay in payments on a personal loan or a credit card, there won’t be massive effects on your credit score, but if you falter with mortgage payments on time, it could have a massive impact on your credit score. Therefore, it is always advisable to make mortgage payments, especially if there are any pending, as quickly as possible. There may be chances that with minor delays, the financial institution or lender might not report the same with the credit bureau.

If you have built equity on your home, and still have a mortgage balance to pay, and due to your deteriorating financial conditions, you are finding it difficult to pay in time, and your credit score is getting affected, consider replacing your mortgage HELOC.

Just like a mortgage, HELOC (Home Equity Line of Credit) is a secured line of credit, that is secured in your home or property. Unlike a mortgage, HELOC offers more flexibility, as you can access your home line of credit and pay back the mortgage only on what you use, the same as a credit card.

Pay off a mortgage in 5 7 years HELOC, instead of dragging mortgage payment for 30 years or more. This is all possible because, with HELOC, you have to:

  • Pay lesser or lower rates of interest, as compared with mortgages.
  • Once your HELOC is approved, you can opt to pay off your mortgage straight away first and then make your HELOC payments.
  • Helps in reducing your monthly installments considerably.

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