Your credit score is not a static number. This is good news for some – and an ominous reminder for others. Your credit score is in a constant state of flux, changing as lenders, collection agencies and public records report newer and newer data – resulting in difficulties determining how one piece of credit activity may affect your credit score.
Let’s look at one of life’s largest transactions: selling your home. Could this affect your credit score positively? What about a negative affect? Is that even something one should worry about when selling? We’ve broken the aspects down into a simple (but due to the intricacies of credit reporting, not all-inclusive) list for quick reference.
Ways Selling Your Home Could Affect Your Credit Score:
- Typically when someone sells their home, they are able to pay off their mortgage in full. This is an action that will stay on your credit report for ten full years from the date of payment. You can keep this positive momentum going by obtaining a mortgage for a new home as long as you are sure to make your new payments on time.
- Revolving debt is a serious drain to any credit score, and paying this down will likely give your score that always-desired boost. Maybe some of the funds from your house sale can be reallocated to pay off credit cards that are nearing their credit limit? Not only will paying down revolving debt positively affect your credit score (especially if you made delinquent payments), but it will also help you qualify for insurance, affordable car loans, and virtually and of the other credit-related opportunities life may throw your way.
- Even though you won?t lose points on your credit score by selling your home, that regular mortgage payment, if paid on-time, may have actually been helping your score. The scoring systems put a lot of focus on timely payments, with mortgages holding the most weight. If your mortgage is the only installment loan you hold, paying it off just might impact your credit score negatively, but this would most likely be minor.
- A history of regular, on-time mortgage payments is one of the very first things lenders look for when viewing your credit report. Timely payments show that you are a low credit risk. If you already have a low existing credit score due to delinquent mortgage payments, unfortunately, paying off the loan will not dramatically improve your score.
If you’ve managed to keep your mortgage payments current, selling your home and taking on a new mortgage for a new home gives you the opportunity to continue benefiting from your past payment success! Way to go!
Always remember that mortgages and other installment loans can only help to improve your credit score if your payments are on time. It?s true that points will not be taken away from your score because you don’t have a mortgage, however, you could very well gain some points if you do have a mortgage. Building a better credit score is absolutely possible by making timely payments and using discretion upon opening new credit lines.