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Buying a home is often seen as the quintessential piece of the American dream. For many people, the whole point of credit building is to get to the point that they can qualify for a lower interest rate when buying a home. Many people are hyper-focused on preparing their credit to buy a home, searching for information like “how to build a good credit score” and similar ideas. However, they don’t stop and think about what happens to their credit afterward. Does buying a house help your credit score?

Is there a negative impact?

Let’s explore.

Manage Your Inquiries

When you first buy your home, be prepared for your credit score to go down. Unfortunately, that will be a short-term side effect of taking out a mortgage. However, there are ways to mitigate the impact.

For example, you are encouraged to shop around to get the best rate for your mortgage. However, too many inquiries can bring your credit score down.

Thankfully, credit reporting agencies help with this by counting all inquiries made for the same type of loan within a certain period of time as one inquiry. Depending on the agency, the window can be from 14 to 45 days.

Credit Mix

Having different types of credit can have a positive impact on your score as they are each viewed a little differently. For example, mortgage debt is seen as “responsible” debt, whereas credit cards are not as respectable.

Higher amounts of debt are usually not good when it comes to your credit score. However, a high mortgage balance does not count against you as much as a high credit card balance would.

All things considered, adding a mortgage is a positive move, particularly if you start making regular on-time payments, which we’ll talk about next.

On-Time Payments

What helps your credit score? At 35% of your score, the number one way to boost your credit score is by making on-time payments. To that end, if you take out a mortgage and start making on-time payments every month, you can enjoy watching your credit score go up. It will take time, of course, but will have a huge positive impact on your overall score over time.

Applying for Other Loans

Even though mortgage debt is looked upon favorably, it is still debt that you are responsible to pay. If you need to apply for another type of loan while carrying your mortgage, your mortgage payment becomes a liability. Lenders will look at your overall situation to determine if you have the ability to pay back your loan. A hefty mortgage payment inhibits your ability to pay off a new loan and may reduce your chances of qualifying.

In Sum: Does Buying a House Help Your Credit?

So, does buying a house help your credit? Yes and no. However, the great news is that you have a lot of control over how your new mortgage affects your credit score. By following these tips you can learn how to build your credit score fast after buying a house.

Are you ready for your piece of the American dream? Shopping around for your dream home is exciting, yet terrifying. Always be sure to have an experienced professional by your side to guide you throughout the whole process.

Contact us here at the Tri-County Team for help from the best team of real estate professionals in the area.

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