A home loan is just one of many items that appears on your credit reports. The Federal Reserve Bank of San Francisco website explains that your reports list all your open credit accounts, including their balances and payment histories, your demographic data and even recent inquiries into your file. All of your credit use activity, including your home loan, figures into your credit score.
Application Process
The home loan application process hurts your credit score before it requires "hard inquiries," according to the MyFICO scoring information website. Inquiries resulting from applications are added to your TransUnion, Experian and Equifax credit reports and are used in the credit scoring process. Your score goes down by as much as five points for a single entry. MyFICO explains that multiple mortgage applications count as one inquiry if you are loan shopping and make all the applications in a two-week period.
Approval
Your home loan affects your credit score once it is approved and becomes part of your credit records. A mortgage affects your score in two main ways. MyFICO explains that scoring models weigh your outstanding debt against your credit limits. Home loans add a lot of debt, which can lower your score if you already have high credit card balances, loans and other bills. Your mortgage payments also influence your score. The Certified Mortgage Planning Institute explains that your payment history is 35 percent of your score, and home loan payments are weighed more heavily than other bills. The exact drop depends on your overall history, but it can be severe even if you make just one delinquent payment.
Benefits
Home loans can help your credit score if you handle them properly. Use the weight carried by mortgage payments to your advantage by always paying them on time, the Certified Mortgage Planning Institute advises. Catch up as quickly as you can if you do miss a payment, as longer delinquencies hurt you more than just one late payment.
Time Frame
Your home loan stays on your Transunion, Experian and Equifax credit reports even after it is closed. It appears for seven years, according to the Federal Trade Commission (FTC), and influences your credit score for the whole time, although the impact goes down over the years. If you default on the loan and your home is repossessed, this also shows up for seven years.
Accuracy
Your home loan could unfairly hurt your credit score if any of the data is inaccurate. The FTC website advises ordering no-cost credit reports from annualcreditreport.com, which provides them yearly with no obligation. Review your home loan information and dispute any mistakes, like timely payments showing up as late, with the credit bureaus, which much take action within 30 days. The negative data stops hurting your credit score once it is corrected or removed.
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