Why Does Buying a House Increase Your Credit Score?

Though buying a home itself does not affect your credit score, taking out a mortgage does. Assuming you handle the mortgage well, it can have a positive impact on your credit score in the long run.

Balances Owed

In the short term, your credit score may drop because of the large increase in the amount of money that you owe. However, having the debt as an installment loan, rather than a revolving account like a credit card, minimizes the negative impact.

Inquiries

When you apply for a mortgage, inquires from each of the lenders you applied to will appear on your credit report. However, as long as you apply within a short time, the credit scoring algorithm will treat all the inquires as one since you are applying for a home mortgage.

Payment History

Assuming that you make payments on your mortgage on time, you will build a positive payment history which will improve the 35 percent of your score based on payment history.

Types of Credit

When you take out a mortgage, you diversify your experience with different types of credit, which improves the 10 percent of your credit score based on the types of credit you have used.

Available Credit

As you begin to build equity in your home, you will see your credit score rise because you are using a smaller percentage of your available credit.

References

• MyFICO: How Your FICO Score is Calculated
• MyFICO: Inquiries
• MyFICO: What Happens to Your Credit After You Buy a Home