How Does a Mortgage Affect Your Credit Score?

Your score could drop, but will rebound with timely payments

Couple meeting with advisor, reviewing documents
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Becoming a homeowner is a huge milestone. It often takes years to build up your credit and finances enough to get approved for a mortgage. But how does a mortgage affect your credit score during and after the homebuying process? While you may see your score drop, don’t panic—it’s usually temporary. Here’s what you should know.

Key Takeaways

  • Hard inquiries performed while mortgage shopping will cause your credit score to drop.
  • A finalized first mortgage, mortgage refinance, or second mortgage will cause your credit score to drop temporarily.
  • If you pay your mortgage payments on time, your score should rebound within a year.

When You Apply for a Mortgage

When you want to buy a house, the first step is to get prequalified for a mortgage. It’s a helpful step for everyone because it ensures you’re shopping within your budget. During this process, lenders will typically check your credit using a soft inquiry, which doesn’t hurt your credit score. However, some may process a hard inquiry.

Once you’ve found a house and need to finalize the mortgage, your lender will need to process a hard inquiry on your credit report, which will affect your credit score. How many points does a mortgage inquiry affect credit score? It’s usually five or less.

If you’re going to shop around for the best mortgage rate, which is a good idea, try to lump your applications together within a small window of time. When you do so, all the inquiries count as one, minimizing the negative impact on your credit score. The credit scoring bureaus can vary in their allowable time frame, but typically, it’s 14-45 days.

Once Your Mortgage Is Finalized

Once your mortgage is finalized, you’re officially a new homeowner. What does that mean for your credit score? In the beginning, your credit score will likely drop because credit scoring models don’t yet have any proof that you’ll successfully make the payments. Another drop can occur due to the new account causing your average account age to decrease.

On the other hand, if you don’t have any installment loans yet, a mortgage can improve your score by diversifying your credit mix.

As You Pay Down Your Mortgage

In the long run, having a mortgage and paying it off as agreed can help you build a stronger credit profile.

A study by LendingTree found that U.S. borrowers saw an average credit score drop of 20.4 points after getting a mortgage. It took an average of 165 days after closing for credit scores to reach their low points, and another 174 to rebound. In total, the decline and rebound averaged 339 days—just shy of a year.

While your score will likely drop initially, a track record of on-time monthly payments on the sizable loan will help to improve your score and trustworthiness as a borrower.

If You Miss Payments or Foreclose

What if you miss a mortgage payment? Your payment history is the most influential factor on your credit score, carrying a 35% weight. If your payment is 30 days or more past due, it will typically be reported by your lender to the credit bureaus.

Note

It’s best to pay your bills as soon as you can because there’s a differentiation between payments that are 30, 60, and 90 days late. Further, multiple late payments are worse than just one. The later you are and the more late payments you have, the worse it will be for your credit score.

If your mortgage goes into foreclosure due to multiple missed payments, the lender will report it to the credit bureaus. The missed payments and foreclosure will all be negative items on your credit report, which will cause a severe drop in your score. These negative marks will remain on your report and impact your score for seven years.

How Does Refinancing Affect Your Credit Score?

If you decide to refinance your mortgage, expect some changes to your credit. Similar to getting a mortgage, refinancing requires shopping around and letting lenders check your credit. This process can cause a small dip in your credit score.

Once you find the right loan, your old loan will be paid off and closed, and a new one will begin. The closing of your existing loan could lower your score if it’s your oldest account because the overall length of your credit lines is a factor.

Similar to getting a mortgage, as long as you keep up with your payments, your score will rebound in time.

When You Pay Off Your Mortgage

When you make your final mortgage payment and own your home free and clear, what will happen to your credit? The loan will be marked “closed in good standing” on your credit report for 10 years. As for your credit score, don’t expect any dramatic change.

Closing a mortgage has very little impact on your credit score, unlike closing a revolving credit card, which can hurt your score by reducing your available credit. However, you may see a drop if the mortgage was your only installment loan, as it will impact your credit mix.

The Bottom Line

Getting a mortgage is a necessary step for most homeowners, but no one wants to see their hard-earned credit score drop. While your score will likely decline during the mortgage application and finalization process, it should rebound within a year as long as you maintain on-time payments.

Frequently Asked Questions (FAQs)

How long does a new mortgage affect my credit score?

A new mortgage can cause your credit score to drop temporarily. It will typically rebound within a year as long as you make your monthly payments on time and manage your other credit accounts well.

Does how much I owe on a mortgage affect my credit score?

The amount you owe on your mortgage and other installment loans is not mentioned as a factor in your credit score by the three credit bureaus. However, the amount owed on revolving accounts such as credit cards is a factor.

How does my mortgage loan-to-value ratio affect my credit score?

The exact algorithm used to calculate credit scores isn’t known, but the three credit bureaus have shared the five main credit-scoring factors, which are payment history, amounts owed, credit history, credit mix, and new credit. They don’t mention the loan-to-value ratio on installment loans, such as mortgages, as one of them.

Does having a second mortgage affect my credit score?

A second mortgage is another loan, separate from your mortgage, so it will impact your credit score. It can cause your score to drop during the application and finalization phases, but the score is likely to rebound within a year if you make payments on time.

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Sources
The Balance uses only high-quality sources, including peer-reviewed studies, to support the facts within our articles. Read our editorial process to learn more about how we fact-check and keep our content accurate, reliable, and trustworthy.
  1. Experian. “Does a Mortgage Hurt Your Credit?”

  2. Consumer Financial Protection Bureau. “​​What Exactly Happens When a Mortgage Lender Checks My Credit?

  3. Lending Tree. “Buying a Home Will Hurt Your Credit Score, but Data Shows It’ll Rebound Within a Year on Average.”

  4. FDIC. “Credit Reports.”

  5. Experian. “Should I Pay Off My Mortgage Early?

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