For many senior citizens, a reverse mortgage can be an intimidating financial product full of unknowns and hidden charges. One of the biggest concerns over a reverse mortgage is whether or not it will negatively affect their credit score. A reverse mortgage could affect actually affect someone’s credit score a number of different ways.
Potential Default
The first way that a reverse mortgage could affect a credit score is by potentially leading to mortgage default. A reverse mortgage is intended to be secured by only a person’s primary residence. If a borrower happens to move out of their home, they may be required to pay back the loan. In this situation, a person will need to refinance into a traditional mortgage or pay back the loan. If the person can’t do either of those, then they could go into mortgage default, which will hurt their score.
Pay Off Other Debts
The second way that a reverse mortgage could affect a credit score is by allowing a person to pay off their other debts. When a borrower get their reverse mortgage proceeds, they will have more flexibility to pay off their other debts. By doing this, the person will improve their credit score immediately.
More Outstanding Debt
The third way that a reverse mortgage could affect a credit score is by causing a person to have more outstanding debt on their credit report. While having this outstanding debt on their credit report may not necessarily be a negative thing, having the additional debt could affect future creditor’s decisions when weighing whether or not to give the prospective borrower a new loan or credit card.
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