Selling your house can be a big financial move, and you might be wondering how it affects your credit score. The answer is it can, but not always in the way you might think. Here’s a breakdown of how selling your home can influence your credit:
Positive Impacts
- Debt Reduction: Selling your house usually means paying off your mortgage. This lowers your debt-to-income ratio, a major factor in credit scores. A healthy ratio shows lenders you manage debt responsibly.
- Improved Credit Mix: Credit bureaus value a mix of credit types, like installment loans (mortgages) and revolving credit (credit cards). Selling your house creates a good opportunity to diversify your credit mix if you use the proceeds to pay off credit card debt.
Potential Downsides
- Loss of Positive Payment History: Your on-time mortgage payments likely helped build your credit score. Selling the house removes this positive history from your credit report, though it stays on record for 10 years. This could cause a temporary dip in your score, especially if your credit history is thin.
- Short Sales: If you owe more on your mortgage than your home sells for (short sale), it can significantly damage your credit score (up to 160 points!). Short sales stay on your credit report for seven years.
Other Considerations
- New Lines of Credit: Buying a new home after selling often involves a new mortgage. This adds a new inquiry to your credit report, which can cause a small, temporary dip in your score.
- Unpaid Liens or Taxes: Selling your house requires settling any outstanding liens or back taxes. Failure to do so can negatively impact your credit score.
The Bottom Line
Selling your house itself won’t directly hurt your credit score. However, the way you handle the sale and any new financial moves can influence it. Here are some tips:
- Pay Off Debts: Use the proceeds from your sale to strategically pay down other debts, particularly credit cards.
- Maintain a Credit Mix: If you no longer have a mortgage, consider keeping a credit card open with a low balance and on-time payments.
- Review Your Credit Report: Before and after selling your house, check your credit report for any errors that could be dragging down your score. You can get a free credit report weekly from Annual Credit Report.
By planning ahead and managing your finances wisely, selling your home can be a positive step for your credit health.