Every responsible individual who owns a credit card needs to be checking their credit score several times a year. This is a habit that’s worth getting into because when you check monthly credit reports, you can help protect against fraud, theft, hacks, and errors from destroying your credit scores and ranking. A check should be performed to see if any unauthorized activity or changes have appeared. Checking your credit report may seem like a bit of a hassle but in the long run it is time and money well spent. When you check your credit, you can see how the choices you make and the way you manage your money month to month impacts your score. There are many things that go into figuring out your credit score. From a mortgage to car payments, and credit cards to bankruptcy, they all have an immense impact on your credit score and ranks.
A large factor that plays into what those three digit number turn out to be when you pull your credit report is your credit utilization. This is basically a breakdown of how much credit and money you have available, how much you have used, and how well you are managing it. The better your credit utilization, the better your credit is likely to be. If you have three credit cards and each has a $1,000 limit, that means you have $3,000 in available credit. If you have $2,000 of that used that is a high percentage of use and your score will not be as good as it could be. If you have only $500 or so used between the three cards then your score will be higher. Most experts recommend keeping your credit utilization to less than 30% of your total available credit. One important thing to note is that large loans such as a mortgage or student loans are not factored into this, so just because you have $40,000 in student loans and $30,000 left on your mortgage payments, you can still have a decent credit utilization score. A mortgage loan is just one of the factors affecting your credit score range.
When a Mortgage Helps
Aside from your credit utilization, creditors like to see that you have a variety of credit types on your report. It is best if you have both revolving credit and installment loans. A mortgage is considered to be an installment loan where a credit card is not. Most people have several sources of revolving credit from their credit cards, but most people only have one or two installment loans- usually a car payment and a mortgage. Having the mortgage gives you a better mix of credit types, and that can help to boost your score. Having a mortgage can also help if you make all of your payments on time and show that you are responsible with the loan. Every on time payment helps improve your credit score and makes lenders look on you a little more favorably.
When a Mortgage Hurts
On the flip side, there are a few instances where having a mortgage could hurt your credit score and ranking. When you first open up the account and take out the mortgage loan there may be slight drop in your score. This is normal and a dips like this happen any time you first take out a loan or apply for a new credit card. Once you have shown you are responsible with the payment your score will start to climb up to higher than it was before. You can also see negative marks if you have to keep adjusting the terms of the mortgage such as a short sale, loan modification, or having to get credit counseling. Another way a mortgage can hurt you and your credit is if you miss payments, are always late with payments, or default totally on the loan and have your home foreclosed. These all will severely hurt your score and cause it drop drastically.
There are many things that go into figuring out your credit score. From a mortgage to car payments, and credit cards to bankruptcy, they all have an immense impact on your credit score and ranks. When you do your routine credit checks and look at your score, you may wonder what impact your spending and debt management habits have on the numbers. A lot goes into calculating your score and your mortgage can be a big help or hindrance in getting your score up to the level you are aiming for.