How Selling Your House Could Impact Your Credit Score

It might seem like a major financial move like selling your house would directly impact your credit score, but the sale itself doesn't. Instead, it's the related financial actions that matter.

1. Mortgage Payoff: When you sell your home, the proceeds are first used to pay off your outstanding mortgage balance. Your lender reports this account as paid in full to the credit bureaus.

2. Account Closure: The mortgage account, which is a type of installment loan, is then closed. This action is recorded on your credit report and can be a significant change to your credit profile.

3. Shift in Credit Mix: Lenders like to see a healthy mix of credit types (e.g., installment loans and revolving credit). Closing your mortgage could reduce this diversity, especially if it was your only installment loan.

4. Change in Account Age: If your mortgage was one of your oldest accounts, closing it can lower the average age of your credit history. A longer credit history is generally beneficial for your score.

How Much Will Selling Your House Affect Your Credit Score?

Selling your home doesn't directly impact your credit score, but related financial activities can. Here are a few key factors that could cause your score to fluctuate during the process.

• Paying off the mortgage. Closing this long-term installment loan can cause a temporary dip in your score. It reduces your credit mix and the average age of your accounts, which are key scoring factors.
• Missed mortgage payments. Falling behind on payments while your house is on the market will negatively affect your credit. Lenders report delinquencies to credit bureaus, which can lower your score significantly.
• Opening new lines of credit. Applying for new loans or credit cards before the sale is final can trigger hard inquiries. These inquiries can temporarily lower your credit score by a few points.

How You Can Avoid Selling Your House Affecting Your Credit Score

Stay Current on Payments

The most critical step is to continue making all mortgage payments on time until the sale officially closes. A single late payment can be reported to credit bureaus and lower your score, regardless of the pending sale. This ensures your payment history remains positive throughout the process.

Address Any Liens

Ensure all outstanding liens or judgments against the property are settled before or at closing. Unpaid debts, such as from contractors or tax authorities, can negatively impact your credit if they are reported. Clearing these debts is essential for a clean financial break from the property.

Verify Loan Closure

After the sale, monitor your credit report to confirm the mortgage account is marked as "paid in full" or "closed." Errors can happen, and an incorrectly reported open balance could harm your credit. Dispute any inaccuracies with the credit bureaus immediately to protect your score.

Ways to Improve Your Credit Score

Improving your credit score is an achievable goal, regardless of your starting point. With consistent, positive financial habits, you can boost your creditworthiness and unlock better financial opportunities.

• Monitor your credit reports. Regularly check your reports from the major bureaus for inaccuracies or signs of fraud, which you can obtain as free credit reports to track your progress.
• Establish automatic bill payments. Your payment history is the most significant factor in your score, so setting up automatic payments ensures you never miss a due date.
• Reduce your credit utilization ratio. Aim to keep your credit usage below 30% of your available limit by paying down balances or requesting a credit limit increase.
• Become an authorized user. Being added to a credit card account with a long history of on-time payments and low utilization can give your score a boost.
• Diversify your credit mix. Lenders like to see that you can responsibly manage different types of credit, such as a mix of credit cards and installment loans.
• Limit hard inquiries. Avoid applying for too much new credit at once, as multiple hard inquiries in a short period can temporarily lower your score.

The Bottom Line

Selling your home doesn't directly affect your credit score. The primary influence on your score comes from paying off the mortgage and how you handle your finances throughout the process.

Frequently Asked Questions

Does selling my house directly affect my credit score?

No, the act of selling your home does not directly impact your credit score. The transaction itself is not reported to the major credit bureaus.

What happens to my mortgage on my credit report after I sell?

Once your mortgage is paid off from the sale proceeds, the account will be marked as "closed" or "paid in full," which can positively reflect your credit history.

Can selling my house for a low price hurt my credit?

Only if you sell for less than you owe in a short sale. This can negatively impact your score because the original loan was not fully repaid.