Closing Costs

• It's not cheap to take out a mortgage loan. In its 2011 closing costs survey, Bankrate reported that the average origination and title fees -- the closing costs -- on a $200,000 purchase mortgage loan came out to $4,070. That represented a jump of 8.8 percent when compared to one year earlier. Many borrowers can't afford to come up with an extra $4,000 in addition to their down payment. Those people often opt to take out a rolling mortgage loan. In such a loan, the closing costs are added to the loan's principal balance. For instance, a $200,000 loan with closing costs of $4,000 would become a $204,000 mortgage loan. Borrowers will then pay a slightly higher monthly payment instead of having to scrape together $4,000 all at once.
  
  

Your Credit Score

• Your three-digit credit score is made up of several factors. If you have a history of missing credit-card payments or making late auto-loan payments, your credit score will be low. If you have amassed an overwhelming amount of credit-card debt, your score will drop, too. If you have never missed a car or home loan payment, and you've always paid your credit-card bills on time, your credit score will be higher. But this is only a portion of what makes up your credit score. Such factors as how much money you owe on each of your loans -- everything from mortgage and car loans to student and personal loans -- is also part of your credit score. Generally, the more money you owe the larger the negative impact on your credit score.
  
  

The Rolling-Loan Effect

• A rolling loan can damage your credit score -- although not by much -- because you are taking on more debt. Instead of taking on a $200,000 mortgage loan, you're taking out a $204,000 home loan. This increases your overall debt, though not by much. Your credit score will be impacted, but only minimally. Because your credit score takes into account so many varying factors, it's impossible to determine what direct impact the extra mortgage loan dollars will have on it.
  
  

The Good News

• Fortunately, you'll be reducing your mortgage loan debt -- at least slightly -- with every payment you make. And if you continue to pay your bills on time, and refrain from running up too much credit-card debt, your three-digit credit score will remain solid. Whether you take out a rolling mortgage loan or a traditional loan, is an important decision. But you shouldn't worry that doing so will leave you with a weak credit score.