Saturday, April 15, 2017, AM | Leave Comment
There are a lot of reasons to buy a home, but most people don’t consider their credit score to be one of them.
Whether you are buying the home of your dreams to live in or are investing in a property to rent, you have to keep in mind that it can have various effects on your credit score.
High Amount of Debt
A mortgage is likely to be the largest loan you will ever take, and that amount of debt can have a negative effect on your credit score.
Typically, credit bureaus do not count mortgage debt against you when calculating your credit score, but if your house payments make it difficult to make your other debt payments, it could hurt your credit score.
Just as with any other loan or line of credit, missed mortgage payments can severely hurt your credit.
Some companies, such as Calibre Real Estate, know that a late or missed mortgage payments can result in late or penalty fees that make it even harder to make your payment.
If you get too far behind in your payments, your lender may initiate foreclosure proceedings, and if you are foreclosed upon, it will severely damage your credit score.
If you have invested in a home as a rental property and need the rental payments to pay your mortgage, it can be a good idea to work with a property management company to deal with the task of collecting rent each month from your tenants.
Paying on Time
Your mortgage can have a positive effect on your credit score if you make your payments on time.
On-time payments are one of the most important factors in your score, and making 360 consecutive on-time payments over the course of a 30-year mortgage can have a very positive effect on your score over the long term.
Mix of Credit
The formulas that calculate credit scores like to see a mix of credit. That means your score is likely to he higher if you have installment loans in addition to credit cards.
If you have only credit cards and no other loans or lines of credit, taking out a mortgage could improve your credit mix, which should give your score a boost, possibly right away but definitely over the long term.
The effect investing in a home might have on your credit score is not a reason to buy or not to buy. But it is one aspect you should consider when deciding whether a home investment is right for you.
Rachelle Wilber is a freelance writer living in the San Diego, California area. She graduated from San Diego State University with her Bachelor’s Degree in Journalism and Media Studies. She tries to find an interest in all topics and themes, which prompts her writing. When she isn’t on her porch writing in the sun, you can find her shopping, at the beach, or at the gym. Follow her on twitter and Facebook.