Debunking the Myth: Does Buying a House Damage Your Credit Score?

October 12, 2023

Will buying a house ruin your credit?

As a financial professional, one of the most common concerns individuals have when considering buying a home is whether it will negatively impact their credit. Your credit score plays a pivotal role in your financial life, influencing your ability to secure loans, obtain favorable interest rates and make significant purchases. So it’s natural to wonder about the potential impact of buying a home on your credit. In this article, we will delve into this topic and provide you with a comprehensive understanding of how buying a home may or may not affect your credit score.

Understanding the Relationship Between Homeownership and Credit

First and foremost, it’s important to emphasize that buying a home doesn’t inherently ruin your credit. In fact, becoming a homeowner can positively impact your credit profile in several ways. By making timely mortgage payments, you are demonstrating responsible financial behavior, which can strengthen your credit history and increase your credit score over time.
In addition, having a mortgage account that is considered an installment loan can diversify your credit mix and contribute to a healthy credit profile. Lenders generally like to see a good mix of credit types, such as mortgages, credit cards and personal loans, because it demonstrates your ability to manage different forms of credit responsibly.

The impact of mortgage applications on your credit

While buying a home itself doesn’t hurt your credit, the mortgage application process can have a temporary impact on your credit score. When you apply for a mortgage, the lender will typically request a copy of your credit report from one or more of the credit bureaus. This is known as a hard inquiry, and it can cause a slight dip in your credit score, usually by a few points.

However, it’s important to note that the credit score impact of a mortgage application is typically minimal and short-lived. Credit scoring models recognize that shopping for a mortgage often involves multiple inquiries within a short period of time. To mitigate this, credit scoring algorithms generally treat multiple mortgage inquiries made within a 30- to 45-day window as a single inquiry, minimizing the negative impact on your credit score.

Managing Your Mortgage Payments for a Positive Credit Impact

Once you’ve secured a mortgage and become a homeowner, your credit behavior plays a critical role in shaping your credit score. Making your mortgage payments on time is essential to maintaining a positive credit impact. Late or missed mortgage payments can significantly damage your credit score and remain on your credit report for years.

It’s a good idea to set up automatic payments or reminders to make sure you never miss a mortgage payment. Consistently making timely payments demonstrates your financial responsibility and contributes to a healthy credit profile.

Responsible use of home equity and credit options

As a homeowner, you may have the opportunity to tap into your home equity, either through a home equity loan or a home equity line of credit (HELOC). Using these options responsibly can have a positive impact on your credit if you make timely payments and manage the additional debt effectively.

However, it’s important to exercise caution and avoid overextending yourself financially. Taking on excessive debt or using home equity to make impulse purchases without a solid repayment plan can lead to financial strain and negatively affect your credit score.

Bottom line

Buying a home will not ruin your credit. In fact, responsible homeownership can have a positive impact on your credit profile over time. While the mortgage application process may result in a temporary dip in your credit score, the long-term benefits of homeownership, including timely mortgage payments and a diversified credit mix, can strengthen your creditworthiness. As with any financial decision, it’s important to manage your mortgage payments and credit options responsibly to maintain a healthy credit profile.

Remember, if you have specific concerns or questions about your unique financial situation, it’s always a good idea to consult with a qualified financial professional.


Does buying a house ruin your credit?

No, buying a house does not necessarily ruin your credit. In fact, it can have a positive impact on your creditworthiness if you manage your mortgage payments responsibly.

How does buying a house affect your credit score?

Buying a house can impact your credit score in a few ways. Initially, your credit score may experience a small decrease due to credit inquiries and the addition of a new debt. However, as you make regular mortgage payments and demonstrate responsible financial behavior, your credit score can improve over time.

Can a mortgage affect your credit negatively?

A mortgage can potentially have a negative effect on your credit if you fail to make timely payments or default on the loan. Late or missed payments can lead to a decrease in your credit score and may also result in foreclosure, which can have a significant and long-lasting negative impact on your creditworthiness.

How long does a mortgage stay on your credit report?

A mortgage typically remains on your credit report for a significant period of time, usually up to 10 years or more. It will be listed as an installment loan and will show your payment history, outstanding balance, and other relevant details. However, even after it’s paid off, the record of the mortgage may remain on your credit report for a while.

Can buying a house with cash affect your credit?

Buying a house with cash does not directly impact your credit since you won’t be taking out a mortgage loan. However, it’s important to note that having a mortgage and making timely payments can help build a positive credit history, which can be beneficial for future credit applications.