Does Having a Home Increase My Credit Score?

Owning your own home is part of the American dream and a laudatory accomplishment, but probably does little for your credit history. Having your own home might not matter to credit scoring models at all unless you took out a mortgage. If you do have a mortgage, rushing to pay it off is unnecessary and probably an unwise use of money.

Identification

Having a home has zero effect on your credit score if you owe no money on it, such as when you pay cash. The credit bureaus do not factor in assets when calculating credit risk, because credit scores only rate a person's willingness to repay a debt. A mortgage can increase your credit score when you pay your installment plan on time. Taking out a mortgage actually lowers your credit score initially, because of the large debt load and the credit check likely required by the lender.

Benefits

To get a truly great credit score you must have at least one installment loan, based on the Fair Isaac risk model. Also, a mortgage tends to be very a long loan, so it also increases the average age of your account and lengthens your credit history by decades at the completion of the payment schedule. Assuming you never miss a payment, years of good credit history and finally paying off the debt should boost your credit score.

Considerations

Mortgages tend to improve credit scores at a far lower rate than revolving lines of credit, such as a credit card from a major lender. Installment debts, such as a mortgage, are typically backed by property, so borrowers must repay at least some of the loan or the lender can repossess the property. Unsecured debts, such as a credit account, are a better indicator of handling credit, because the account is unsecured and credit available again after paying the balance.

Tip

Avoid applying for new lines of credit right after you sign the paperwork for a mortgage. Credit inquiries close to the opening of a mortgage account make you look desperate to make up for a financial shortfall. In general, you should not apply for more than one or two accounts a year to keep your score as high as possible. Once you pay off the mortgage, you will improve your chances at another mortgage in the future, because lenders often weigh past mortgage accounts more heavily than other data.