Will taking a second mortgage affect my credit rating?

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By: Kedy
on 1st Jun,2015

When considering what affects your credit score, most people think about their home mortgage and other major loans.
Will taking a second mortgage affect my credit rating?


When considering what affects your credit score, most people think about their home mortgage and other major loans. While a home loan can actually solidify your reputation as a responsible borrower, many people worry about how a mortgage will affect their credit history and score for both the long and short term. By better understanding how a mortgage or second mortgage might affect your credit score, you can take the steps needed to plan financially and to protect your credit history.

Mortgage Loans and Credit


All mortgage loans will have an affect on your credit score, whether it is the initial mortgage, or a second mortgage. However, the degree to which it will be affected and the time frame involved are more difficult to determine, as these issues depend on a variety of factors. These factors are, primarily, based on your behavior as a borrower and the ability for you to uphold your commitment to repaying the mortgage.


A mortgage is a large debt, and many lenders will be wary of issuing an additional loan immediately after you take out a mortgage. A new, second mortgage, may place you into a credit risk category. Therefore, you should expect that your credit score might take a significant drop within the first six to twelve months after you take out a mortgage loan. If you check your credit rating after you have been granted this loan, you should be able to determine exactly how much your score has changed.

Raise Your Credit Score with Timely Payments


Many borrowers ask themselves, will getting a mortgage affect my credit? When thinking about the effect that a second mortgage loan can have on a credit score, most people think of their credit score as being damaged due to taking out a loan. While your score may be lowered initially, it is important to remember that you can actually raise your credit score by making timely mortgage payments. This establishes your history as a responsible borrower, and it can be beneficial for your score in the long run.


Lenders will look at the payment history of potential borrowers in order to determine their credit risk. A borrower who pays his mortgage reliably is considered to be a good credit risk. However, a person who does not have a mortgage or other debt will not have a payment history, so he will be an unknown risk. In general, a lender will typically prefer to approve a loan for a person who has a reliable payment history rather than someone with no payment history of which to speak.

Failure to Pay or Paying Late Will Damage Your Score


One of the most important things to know when getting a mortgage is that a late payment or failing to send in a payment entirely can cause damage to your credit score. This is because around 30% of your overall credit score will be based on your history of repaying your loans, and a significant portion of this will include your mortgage. Even one missed payment can result in a negative impact on your credit score.


If you take out a second mortgage and then realize that you aren’t able to afford the payments, you should contact your lender immediately. Even if foreclosure or short sales are on the table as options, it is important that you continue to make your monthly mortgage payments. The final short sale and foreclosure will result in a negative impact on your score, but it can be reduced if you are able to continue making your monthly payments.


It is important to remember that there is a close relationship between your credit score and your mortgage, so you should be smart when it comes to making your payments. Ensure that you are taking out a mortgage that you can afford and make payments in a timely manner so that your mortgage can work to raise your credit score. By having a better understanding of how a mortgage can affect your credit score, either positively or negatively, you can use this loan to your advantage.

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