Buying a home always instead of renting it is a life-changing decision that comes with many financial responsibilities, including the risk of affecting your credit score. Both renting and buying a property influences your credit, and both these options have their pros and cons. Knowing them beforehand is vital to make a fully informed decision and choose what’s best for you.
How renting a house will affect your credit score
The first way renting may negatively affect your credit score is when your property manager requests a credit inquiry. Since this credit check is considered a hard inquiry, it may hurt your score, although you need more than one inquiry before any negative effect may be appreciated. So if you want to rent a house, our best advice is to avoid changing home too frequently.
The other way renting may damage your credit is pretty self-explanatory. If you miss one or more rental payments or pay them after the month is over, and your property manager reports them, your credit score will be hurt. On the other hand, if you keep paying on time, you are building good credit, especially if you use a credit card to pay your monthly rent. Obviously enough, if you get evicted after failing to pay your rent, your credit score will be badly damaged.
How buying a home will affect your credit score
The same issues that may have negatively or positively affected your credit score when renting a house are also applied when buying if you ask for a mortgage. If you apply for a mortgage loan, in fact, a hard inquiry will be requested, but in this case, you may have to apply for multiple loans before one gets approved, and the inquiries will keep piling up.
Paying your mortgage on time and in full is even more important than paying your rent since it will affect your credit score by a significant amount. At the same time, when you buy your credit score will drop a little no matter what since you’re taking on new debt. But if you keep staying on top of your payments, your score will ultimately improve more than it is damaged.
Regardless of whether you choose to buy or rent, be sure to repair your credit beforehand to ensure that there are no inaccuracies or errors which may lower it and negatively affect your interest rates.