Does Home Ownership Raise a Credit Score?

The amount you pay for a home can depend on your credit history.

The amount you pay for a home can depend on your credit history.

Owning a home in and of itself will not raise a credit score. However, taking out a mortgage and making timely payments may. Credit scores are a reflection of how you handle credit accounts. Your income and assets neither contribute nor detract from your score, although lenders may consider them when making loan decisions. If you don't handle your mortgage responsibly, buying a home could end up lowering your credit score.

Payment History

Making timely payments on your debt is the single biggest part of your FICO score. If you take out a mortgage, this is another opportunity for you demonstrate your ability to manage debt responsibly. Since 35 percent of your score comes from your payment history, paying your mortgage on time can contribute a substantial amount to your credit score. Missing payments could have an equally detrimental effect.

Types of Accounts

Adding an installment loan such as a mortgage to your credit history can help raise your credit score. The FICO scoring model considers a mix of credit as reflective of an ability to handle diverse credit lines. Having a mortgage in addition to other types of accounts such as revolving credit cards can help raise the 10 percent of your credit score based on types of credit.

Length of Credit History

The typical home mortgage is a 30-year loan. While this is a long time to have to pay for something, the very length of a mortgage can help your credit score. Fifteen percent of your FICO score comes from the length of your credit history, so every year that you have your mortgage will benefit your score.

Benefits

The main benefit of having a high credit score is the ability to get future credit at cheaper rates. Since interest rates are likely to fluctuate over the term of your mortgage, you may want to refinance your mortgage at some point. With a higher credit score, you can negotiate a lower interest rate and potentially save thousands of dollars over the life of your mortgage. The benefits of a high credit score can affect all loans you may consider, such as credit cards and car loans.

About the Author

After receiving a Bachelor of Arts in English from UCLA, John Csiszar earned a Certified Financial Planner designation and served 18 years as an investment adviser. Csiszar has served as a technical writer for various financial firms and has extensive experience writing for online publications.

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