Four Loans That Affect Your Mortgage Worthiness

When shopping for a mortgage, your credit score is paramount—ultimately making or breaking your mortgage approval and determining whether or not you snag your dream home. According to, here are four key consumer loans that can affect your mortgage worthiness, along with ways to improve your credit if you already have (or are considering) these loans—all with the goal of helping you qualify for the best possible mortgage rates.

1. Student loans

Although student loans are unsecured debt, they’re not necessarily bad for your credit score if you pay your bills on time. Because they often take decades to pay off, student loans actually can help your score. Likewise, other loans held (and paid consistently) over a long period raise your score. Student loans will figure into your overall debt-to-income ratio, however, so a large student loan or other loan might affect your ability to qualify for and afford a mortgage.

2. Auto loans

Auto loans are secured debt, because the lender can repossess the car if you don’t pay. In some cases, auto loans raise your credit score by diversifying the types of debt you carry. And because auto loans are more difficult to obtain than credit cards, some mortgage lenders may look favorably on you because you’ve already been approved for a loan that wasn’t a sure thing.

3. Payday loans

These loans don’t usually show up on your credit report. But if you default on the loan, it could harm your credit. These loans are unsecured (meaning the lender doesn’t have any collateral) and their interest rates often are quite steep.

4. Existing mortgage loans

Mortgages are the classic example of a secured debt because the bank has the ultimate collateral—a piece of property. When paid on time, mortgages are great for your credit score. However, missed payments on previous mortgages will make your new lender nervous. Also, if you already have a mortgage and are applying for a second one, the new lender will want to be sure you can afford to pay both bills every month, so they will look closely at your debt-to-income ratio. If your second mortgage is for a rental property, you may expect the rental income to count toward the income side of the equation.

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