Getting a mortgage will affect your credit rating, and while it may decrease slightly at first, your credit rating can improve if you make consistent, on-time mortgage payments every month. Once your credit rating increases, you'll likely get better terms and interest rates for the loans you apply for. Applying for a mortgage will lower your credit rating, at least temporarily. The decline in your rating depends on several factors, including your credit history. Still, a new study from LendingTree suggests that getting a mortgage has little impact on your credit rating.
Many homebuyers can rebuild their credit to buy a home in as little as six months. And, every month after that, grades get even better. Suppose an improvement or renovation project increases the value of your home. In that case, you are technically improving your credit utilization ratio since your loan represents a smaller percentage of the home's value after the improvements. Generally, a prequalification only counts as a positive credit report assessment so it won't affect your rating. It can help determine your chances of approval, the amount of housing you can afford, and the rates you could qualify for.
All your bills and the usual expenses related to maintaining and improving a home will significantly impact your credit. If you need to figure out how your credit history is doing or how owning a home has affected your rating, check your credit report to take an in-depth look at your credit, what's faking it, and how you can improve your rating over time. Decades ago, the best way to establish and build a good credit rating was to buy a large appliance with a small loan. If you're looking for a home, you might wonder how a big purchase (and a mortgage) could affect your credit rating.
In the short term, getting a mortgage for a home may cause your credit rating to decline, but don't worry. Your initial debt-to-income ratio (DTI), or housing ratio, should be around 36% of your total gross income; this means that about a third of your gross monthly income can go toward mortgage payments, mortgage insurance, etc. When you get a mortgage to buy a home and as you pay it back over time, your credit rating will be affected to some extent.