Does a mortgage loan help your credit score?

Answer 1

Typically speaking, yes. A mortgage loan acts as an installment loan, which if you pay on time on a regular basis, and your balance goes down each month, it can certainly help your credit.

That being said, just one or two MISSED mortgage payment can have a huge negative impact on your credit score. 30% of your credit score is determined by your payment histories and a huge chunk of that 30% is your mortgage payment.

If you are talking about a REFINANCE mortgage with which you consolidate debt, that can have a huge positive impact on your score because your revolving account balances drop to zero. High balances on revolving accounts (like credit cards) have a large negative impact on your score. You never want to carry a balance on a credit card that is more than 50% of the credit limit.

While it's true that refinancing can help you consolidate high-APR credit card debt, and reduce the associated balances, a refinance will likely lower your credit score in the short term. Also, you are exchanging unsecured debt with secured. If you cannot make the payments, you are facing foreclosure or a short sale. This happened to many folks during the 2008 subprime downturn, so be very careful.

Essentially, any time you apply for new credit, you appear as a higher credit risk to other lenders, so your credit score will drop as a result. But long-term you'll improve your financial position if you make timely payments on any new loans.