Having a mortgage provider approve you for a home loan may give credence to your creditworthiness, but getting approval for a mortgage won't improve your credit score---at least in the short-term. Even if your score improves in the next few months, simply having a mortgage could make you too risky for other lenders.
Identification
As soon as you receive your mortgage your credit score will likely see a drop, because adding any new debt makes a person a greater default risk. Also, a new mortgage has no history on it and lowers the average age of your accounts---10 percent of your credit score. Once you start paying your monthly installment as agreed then your score should improve, assuming that you have no other accounts in poor standing.
Mix of Credit
If you have no other installment loans, a mortgage improves your mix of credit. The FICO score model gives a 10 percent weight to people who use a good variety of loans. Ideally, consumers should have two revolving loans, such as a credit card or home equity line of credit, for every installment loan.
Debt to Income Ratio
Lenders probably care just as much about your income to monthly debt payment ratio as your credit score. If your DTI ratio exceeds 36 percent, the lender will probably reject your applicant in any circumstance, because your income won't support your debt liabilities. Ideally, your DTI should not go past 28 percent, according to Lending Tree.
Tip
When applying for a mortgage, do not tackle any more debt. Applying for several loans at once is a characteristic of someone anticipating financial hardship. Also, lenders tend to check scores again right before the close of a sale. When the lender reviews your score again, the dip from new loans could disqualify you for the best rate or the loan altogether.
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