Almost every person gets to that stage in life when it’s time to think about buying a home. You might be just married or are starting to have children, and getting a mortgage is in the near future.
But many people don’t understand what getting a mortgage means, and how it can affect their credit and therefore, their future financial life.
Getting a mortgage requires a large amount of money, almost always leading to loans.
According to Ready for Zero, the standard down payment for a home is 20 percent, and even then, “you’ll likely need a bank to help cover the rest of the loan.”
Credit becomes crucial to your decision to buy a home right off the bat because you have to get pre-approved for a mortgage.
So what about later, once you get pre-approved and you take out that large sum of money to get a mortgage?
Even with an unstable housing market in the past few years, having a mortgage is still considered ‘good debt’ because it’s debt that’s tied to a physical asset — unlike credit card debt that’s not backed up by any asset, the article states
So mortgage debt is actually beneficial to your credit score, if, of course, you make payments on time. A mortgage is also beneficial because it’s a different kind of debt that you become responsible for, proving that you’re more responsible as a borrower.
The immediate effect of taking out a mortgage will likely make your credit score go down slightly, but over the next six months to a year, the positive effects of making your payments on time, plus adding another layer to your credit mix, will likely improve your overall credit history and therefore your credit score will also improve, the article states
What if I have bad credit beforehand?
It’s really tough to qualify for a mortgage loan with bad credit history because the pre-approval process includes an investigation of your financial history.
Start implementing good credit tactics immediately after you start thinking about getting a mortgage. Refer to these seven credit mistakes so you can be on your way to building your credit score, so you won’t be worried about the pre-approval process.
You can also hire a professional to help you repair your credit by disputing negative items on your credit history report.
The Credit Repairmen not only repair credit, but educates its customers about smart credit building tactics.
Call us at 210-520-0444 to speak with a credit counselor.