Does a 25-Year Mortgage Help Credit?

Obtaining a 25-year mortgage not only helps fulfill your dream of owning a home, it can lead to easier access to future loans for other big-ticket items. Despite their enormous value, paying a mortgage may not boost your score as quickly as revolving loans, such as a credit card. Revolving loans tend to give a better impression of your willingness to pay back a loan.

Identification

Assuming you pay every bill on time, a 25-year mortgage helps most facets of the FICO credit score calculation. You will gain good credit history and reduce your debt load at the end of the loan's life. You also build a lengthy credit history, which accounts for 15 percent of your credit score. If you have no other installment loans, a mortgage boosts your variety of credit -- which accounts for 10 percent in the credit score calculation. How much the mortgage helps depends mostly on other items in your credit history. However, expect a drop in your score during the first few months of the mortgage, because of the inquiry into your credit history and the new debt burden.

Considerations

The FICO scoring system weighs mortgages and installment debt less heavily than a revolving account, because lenders take much less risk with a mortgage, as the borrower backs the loan with an asset, according to Wallet Pop. You can wipe out unsecured credit lines in bankruptcy, so paying them off shows a better commitment to repaying a debt.

Potential

A mortgage does not always have to boost your FICO score to improve your creditworthiness, especially if you want another mortgage. Companies may use a proprietary formula that rates your risk as a mortgage borrower rather than the standard FICO formula. A formula that focuses on mortgage history will give much more weight to paying off a past mortgage than any other item.

Tip

Borrowers with the best credit scores usually have a ratio of two revolving loans to every installment account, credit specialist Wayne Sanford told MintLife. If you have a mortgage and a car loan, for instance, you should have four revolving accounts. This does not have to be a credit card. Home equity lines of credit, for example, also count as a revolving loan.