how does taking mortage loan affect my credit score after closing

Question

I am taking a loan on my first home purchase. I have 780+ credit score now. How is my credit score affected after closing on the loan.

Answer 1

There will be several impacts. Most of the immediate impacts will likely be negative, but in the long term, if you behave well, the impacts will likely be positive. That said, none of us can tell you exactly how many points your score will change by, because we don't have access to your entire data set.

In general, the immediate negative impacts will be:

• You'll have a recent hard pull. In order to grant you the mortgage, your lender pulled your credit report indicating that it was to evaluate you for a loan. That'll ding you a small number of points for a relatively short timeframe.
• Your average age of credit will decrease. Credit models take into consideration the average age of all your loans. So if you have a car loan that's 2 years old, and a credit card that's 12 years old, that 6-year average will now get dragged down by your zero-year-old mortgage. Again, this is typically a small number of points and for a limited duration (as your mortgage gets older, the average will creep back up).

There's also the potential for an immediate positive impact, depending on your current credit portfolio. Models include credit mix (installment loans, mortgages, credit cards, etc) although it's typically a small factor. If your credit history hasn't been very diverse until now, you may get a small, immediate bump. For instance, if prior to this you'd only ever had a credit card, your score will improve slightly by adding another loan type.

Generally, the biggest factor in credit score is payment history. So, in the long term, if you pay the mortgage on time consistently, your score will likely increase overall.