Does Your Mortgage Help or Hurt Your Credit?
Owning a home is one of the biggest financial commitments most people will ever make—and your mortgage plays a major role in your credit profile. But is that role a good one or a bad one?
If you’ve ever wondered whether your mortgage is helping or hurting your credit score, you’re not alone. The truth is, it can do both—depending on how it’s managed.
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Now, let’s break down how your credit score can be affected by a mortgage– both good and bad.
The Positive Side: How a Mortgage Can Help Your Credit
When handled properly, a mortgage can be a powerful tool for building credit. Here’s how:
1. Diversifies Your Credit Mix
Credit scoring models reward people who show they can manage different types of credit. Mortgages are considered installment loans, which are different from revolving credit like credit cards.
A healthy credit mix makes up about 10% of your FICO score, and having a mortgage adds weight to your profile.
2. Builds Long-Term Credit History
Mortgages are long-term loans, often lasting 15 to 30 years. This contributes to the “length of credit history” portion of your score, which accounts for another 15% of your FICO score.
The longer you maintain the account in good standing, the better it looks.
3. Adds a Record of On-Time Payments
Making your mortgage payments on time is one of the most important factors in building credit. Payment history makes up 35% of your credit score, and a mortgage offers a big opportunity to demonstrate reliability.
The Risk Side: How a Mortgage Can Hurt Your Credit
While a mortgage can help, it also has the potential to negatively affect your credit if things go off track.
1. Missed Payments Can Devastate Your Score
Missing even one mortgage payment by 30 days or more can lead to a major drop in your score. Missed payments stay on your credit report for up to 7 years.
The larger the loan and the later the payment, the greater the damage.
2. High Loan Balances Can Affect Ratios
While installment loans don’t impact your credit utilization as strongly as credit cards, large outstanding balances may still influence your overall credit profile—especially when newly opened.
Your score may dip slightly after a new mortgage appears, but this often corrects over time with steady payments.
3. Hard Inquiries at Closing
When you apply for a mortgage, lenders pull your credit reports, resulting in a hard inquiry. A single inquiry usually causes a small, temporary drop in your score—nothing to panic over.
However, multiple inquiries over time can become a red flag if you’re applying for other types of credit simultaneously.
Bonus: What Happens When You Pay Off Your Mortgage?
Paying off a mortgage is a huge accomplishment—but it doesn’t always lead to a score increase.
In fact, some homeowners see a small dip in their score after the mortgage account is closed. That’s because:
- You lose the installment loan from your credit mix
- Your average age of accounts may decrease
- The account becomes “inactive” over time
But don’t worry—this drop is usually minor and temporary.
Final Verdict: Does a Mortgage Help or Hurt?
✅ Helps, when:
- You make on-time payments
- You hold the loan long-term
- It improves your credit mix
❌ Hurts, when:
- Payments are late or missed
- You max out other forms of credit
- You don’t manage new debts responsibly
If you ever need expert assistance or guidance on your credit journey, don’t hesitate to reach out to the Nerds! Additionally, stay updated with the latest tips and information by following us on Facebook, Instagram and TikTok!
