Will a House Boost Your Credit Score?

Credit scores are calculated using criteria such as the types of credit accounts you have, the balances on the credit accounts, the overall and average length of your credit history, and other factors. When you add a house mortgage to your credit report, several new factors are added to the report that can make your credit go up or down, depending on your situation.

Credit Score Basics

Your credit score is a three-digit number produced based on information found in your credit report. The credit report information comes from your creditors, public records and collections. A credit score is influenced by several different aspects of your credit report, such as your credit balances, the age of your accounts and any negative credit marks such as collections. Lenders use credit scores to determine your credit worthiness when you apply for a loan or credit card. Good credit scores allow you to get promotional rates, low interest rates and other benefits. Bad credit scores can prevent you from qualifying for credit at all, or can result in you getting terms that include higher interest rates.

Diversity

If you have never had a mortgage loan, buying a home will boost your credit report's diversity of credit lines. The diversity of your credit accounts is a positive factor, so once the mortgageis reporting, you will likely receive a score increase. Other types of accounts you can add to your credit report to increase diversity of credit lines include credit cards, installation loans, car loans and store cards.

New Account

Another aspect of credit scoring involves new accounts. A new account may have a positive effect if you do not have many new accounts or a negative effect if you have many accounts and your new account reduces the average length of time that you have had credit accounts.

Inquiries

When you apply for a mortgage through a lender, an inquiry is placed on your credit report. The inquiry reduces your credit score slightly, because it indicates you want to borrow more money, but it may have a larger effect if you have a thin credit file. Thin credit files are credit reports without long histories or many accounts. Inquiries are removed from your credit report after two years, so the negative effect is temporary.