By Constance Brinkley-Badgett

If you’re thinking about selling your home, you might want to also think about how it can affect your credit score. 

Generally speaking, when you sell your home, your outstanding mortgage balance gets paid off, which can be a positive for your credit. Of course, however, it’s also possible that selling your home can negatively affect your credit. Let’s take a look at the positives first.

How Selling Your Home Can Improve Your Credit

If you sell your home and get another mortgage for a new home, you’ll continue to reap the benefits of having a mortgage in your mix of credit accounts. And if you continue to have a good payment history, making on-time payments every month, your credit scores can see an even greater boost over time. But, if you sell and decide not to carry a mortgage, you can potentially lose a few points. Why? Your account mix is worth about 10% of your overall credit score. Having a diverse mix of accounts, including credit cards, auto loans, mortgage loans, etc., will ensure you get the highest score in this area.

Also, when you sell your home for a profit, you could decide to pay off any existing credit card or loan debt. Paying down this kind of revolving debt can raise your credit scores, especially if you’re currently using a high percentage of your available credit. That’s because a full 30% of your credit score is based on the amount of debt you’re currently carrying.

…But a Home Sale Can Also Hurt Your Credit

Selling your home in a short sale, also known as a pre-foreclosure sale, for less than you owe on your mortgage can take a nasty toll on your credit, dropping your credit scores by as much as 160 points, depending on what your scores were prior to the sale. If you find yourself in a situation where you’re considering a short sale, it’s important to weigh your options carefully. Returning your credit to its previous standing could end up taking a lot of work over several years.

Why Your Credit Matters

As you consider options for selling your home, keep in mind that your credit doesn’t just affect your ability to qualify for loans and credit cards. It also impacts things like your homeowners insurance premium, your auto insurance premium and can even affect whether you are considered for a new job. A lot of employers check applicant credit scores during the hiring process, and really low scores can be a red flag for some. That’s why it’s important to keep track of your credit by getting your free credit reports each year and by tracking your credit scores on a regular basis. 

Selling your home could potentially have a big impact on your credit. But if you’re managed to stay on top of your mortgage payments, selling the home you own now and taking on a mortgage for a new place will allow you to use that momentum and continue showing lenders that you’re a fiscally responsible investment.

Constance is an editor and writer at Credit.com. Prior to joining us, she worked as an editor for MSN.com, senior digital producer for CNBC, and digital producer for NBC Nightly News. She also is a graduate of the International Culinary Center in New York, has worked for chefs such as April Bloomfield and Jean Georges Vongerichten, and is the founder of Crave Personal Chef Services in Austin, Texas.