If you’re on your way to purchasing your first home, you might be wondering, “Will this impact my overall credit score?” The mortgage process will definitely affect your credit score. But luckily for you, these are only minor and short-term dings to your score!
How does this affect my score?
At first, your score may drop a few points during your prequalification. At this stage, lenders usually pull your report several times to make sure that your credit is in good enough standings for you to make a large purchase. A "hard inquiry" of your credit score will occur each time your report is pulled. This will lower your score incrementally. To minimize the number of points decreased, you might want to consider shopping for your home within a 30-day time span. If all inquiries occur during that time, the credit bureaus will typically count your total hard inquiries as one. While during prequalification, your score is only affected a little, opening a mortgage loan takes a harder hit on your credit score. Especially for first-time home buyers, taking out a large sum loan means higher risk. As a first-time home buyer, you have no history of whether or not you are able to pay back your mortgage loan causing a huge dent in your credit score. Before you enter into panic mode, remember that these decreases in your credit score are only temporary! Opening a mortgage loan may actually be more beneficial to you in the long run. As long as you continue to make on-time payments on your mortgage, your score will grow quickly and drastically.
So always save, budget, and make your payments!