Does a mortgage affect your credit score?

Applying for a mortgage affects a credit file when the lender runs a hard search. The search is visible to other lenders and can lower an agency score slightly for a short time. Eligibility checks and many mortgages in principle use soft searches instead, which do not affect how other lenders see the file.

The effect of one application is small. Several applications in a short period have more effect, which is why matching an application to a suitable lender first keeps hard searches down. The guide to soft and hard credit checks explains each type.

A credit score can fall after a new mortgage completes, because the file now shows a large new debt, a recent hard search and a young account. This is common and usually temporary. As regular payments are reported each month, the new account starts to show a record of reliable repayment.

The drop shown in an app does not mean lenders see the applicant as a poor risk. Lenders read the detail of the file, where a new mortgage paid on time is a normal, positive entry.

Each mortgage payment is reported to the credit reference agencies by the lender, usually every month. Paying on time builds a positive history over the life of the mortgage. Missing a payment, or paying late, is recorded as arrears and can lower a score and affect future applications for any kind of credit.

A payment holiday or an agreed change to the payments, such as switching to interest-only, can also be recorded. How it appears depends on what was agreed with the lender, so it is worth asking before making a change.

Paying off a mortgage closes the account. Some applicants see their score dip afterwards, because a long-running account in good standing is no longer active and the mix of credit changes. The paid-off mortgage stays on the file as a settled account for several years, showing a record of full repayment.

Paying off a mortgage early does not damage a credit file. Early repayment charges are a cost under the mortgage terms, not a credit file entry.

A mortgage may not appear on a credit report if the lender does not report to that agency, if the account is in another person's name only, or if the details were recorded under a different address. Checking all three agencies shows whether the account appears on any of them.

If a mortgage is missing from every file, the lender can confirm which agencies it reports to. The guide to which credit report lenders use explains the differences between the agencies.