Unlike what the media depicts, you can’t just show up at a house with a bag full of cash, say you want to buy the property and then it’s yours. Even then, hardly anyone has that much cash readily on hand in the first place. That’s usually where mortgage loans come in and like all loans, this reflects in your credit score.
PrimaryNW.com says that when taking a loan, lenders and institutions check into your financial history before they grant anything. Few people realize how to utilize this to their advantage. Having a new line of credit, like a mortgage, in your record can actually help you in the future if you make regular, timely payments.
Here’s how it works.
The Relationship Between Your Mortgage and Your Credit Score
First of all, you have more than one credit score. You have hundreds of them and the numbers frequently fluctuate, based on numerous factors. The lines used most often are your payment history and new credit — including your mortgage. The more varying lines of credit you have, the better it looks on your overall score.
Mortgage payments take around 15 to 30 years to pay off completely and so, if you pay them in a timely manner, this is a good way to build up your payment history. Your payment history makes up a large percentage of your credit score.
This is especially advantageous for those with a history of bad credit — mortgage, after all, is also less of a risk with lenders as the property itself gives them a fallback.
Other Ways to Improve Your Credit
While some ways may not necessarily reflect upon your credit score, there are some healthy financial habits you can train yourself to do so you don’t worsen it.
One way to do this is to build up an emergency fund. Unprecedented calamities could occur at any moment and an emergency fund can save you a lot of stress in dealing with the aftermath. Other habits you can practice like paying your bills on time or stopping yourself from unnecessary purchases can help improve your score as well.
Though it may take a while, getting a mortgage and paying it off can help you in many ways — including improving the state of your credit.