If you are buying a home with a mortgage from a reputable lender, your credit score is likely to already be quite good, or you would not be able to get a loan. As a first time buyer, you will suddenly appear to have many thousands of debt which you didn’t have before, so in the first month or so after taking out your mortgage, your credit score may go down. This is because of the increased indebtedness and also because – unless you only approached one lender – the inquiries made by lenders will have had their effect and driven your score downwards.
This will be only temporary, though. If you make sure that you always pay your mortgage and other repayments on time, buying a home will improve your credit score a lot. Credit ratings are not created by one single thing, so you shouldn’t just rely on the fact that you are buying your home to keep your credit score high. Applying for loans will always reduce your score temporarily as every check by a lender has a deleterious effect on your score – this isn’t a huge drop, but is a downward trend. So it is best if shopping around to just look online, rather than make an application which you then don’t follow through.
The best piece of advice when you are trying to improve your credit score is to always pay on time. You should look carefully at the small print on all of your credit card bills, loan agreements and similar paperwork to see how long a payment takes to get to the payee. Most mortgage payments are taken as a direct debit, so there should be little problem with them, but if you don’t have one set up, you should make sure you pay early if anything, because a payment made on the due day may end up taking a while to be credited, meanwhile you are shown as a late payer. Even if this is only by a day, these black marks can add up. If you can’t find out how long the processing takes, ask your lender – it is worth taking the time to check.
Some people who don’t owe anyone a penny are often disappointed to find they have a low credit rating when it comes to taking out a loan or mortgage. Essentially, someone with current credit arrangements and a good track record of payments will have a better credit score than someone who doesn’t owe anyone any money at all. If you are planning a big purchase needing a loan, it is a good idea to take out a few small loans or perhaps a credit card and being absolutely scrupulous in how you keep up payments, making them early and over the minimum when you can. This will give you a financial ‘footprint’ which a credit agency can find and put a score to – then the bigger loan will go through with less effort. Furthermore, this financial footprint will also enable you to buy a home quickly next time you are applying for a mortgage.