LendingTree Reveals Credit Scores Take Nearly a Year to Recover After Buying a House
CHARLOTTE, N.C., October 31, 2018 – LendingTree®, the nation’s leading online loan marketplace, today released its study on how buying a house affects credit scores. The analysis looked at more than 5,000 consumers who took out a mortgage and how their credit scores changed in the months following. The study shows that while scores initially fall, they eventually recover.
“A house is the biggest purchase most people make in their lifetime, with the accompanying mortgage being their largest financial transaction,” said Tendayi Kapfidze, Chief Economist at LendingTree. “Most people know they should work toward having the best possible credit score before applying for a mortgage, as an applicant’s credit score can significantly affect the amount and cost of borrowing. But what happens to your credit score after you get a mortgage?”
- Scores fall for at least four months. On average, credit scores fell by 15 points and took 160 days (just over five months) to reach their low points. Mortgages do not appear on credit reports immediately after closing. Typically, the mortgage lender starts reporting to the credit bureaus after the first payment and depending on the lender’s reporting cycle, so it may take about 60 days after closing or even longer for it show up and start affecting a score. New Orleans homeowners saw their credit scores reach their lowest points in an average time of 133 days, while Milwaukee homebuyers’ scores had the longest decline: 191 days.
- Recovery takes at least another five months. It took an average of an additional 161 days for scores to return to their prior levels. As borrowers make on time payments, their credit scores start to recover. In Richmond, Va., homebuyers’ credit scores rebounded fastest at 130 days, while the upward climb for homeowners in Austin, Texas, lasted 197 days.
- Eleven months later, scores recover and are poised to move higher. The average for the complete decline and recovery cycle was 11 months nationally. Richmond homebuyers saw their credit scores go through the cycle the fastest (9 months), while the dip and return of Milwaukee homebuyers’ scores took the longest (13 months).
- Tight range of score declines. The average score fell the most in Virginia Beach, Va., down 20 points, and the least in Minneapolis at just 11 points. Individual credit scores in the sample declined as much as 40 points.
Why new mortgages affect credit scores
When a consumer takes out a mortgage, a large balance is added to his credit report. Credit scoring models consider a consumer’s total balance of money owed, and a large increase in outstanding debt drives scores lower. The presence of a new credit line item also weighs on the score, though to a lower extent.
As time passes, making on-time payments helps a borrower improve their credit score as they demonstrate they are managing their new mortgage account well. Having a mortgage also increases the diversity of accounts in the credit file, which also boosts the score. Eventually, the score returns to its pre-mortgage level and in most cases, surpasses it.
As well as national data, LendingTree researchers took a look at the variation in credit scores across the 50 largest cities in the U.S., using data from My LendingTree, a financial intelligence platform that can help consumers better manage their financial health. These aggregate numbers give a view of the effects of homebuying on credit scores.
Cities with the fastest credit score recovery after getting a mortgage
#1 Richmond, Va.
Average initial credit score: 693
Average decline in score: 13
Total time till recovery: 266 days
Average initial credit score: 701
Average decline in score: 11
Total time till recovery: 267 days
#3 Salt Lake City
Average initial credit score: 704
Average decline in score: 15
Total time till recovery: 272 days
Cities with the slowest credit score recovery after getting a mortgage
#48 Riverside, Calif.
Average initial credit score: 685
Average decline in score: 17
Total time till recovery: 375 days
Average initial credit score: 687
Average decline in score: 15
Total time till recovery: 377 days
Average initial credit score: 700
Average decline in score: 11
Total time till recovery: 384 days
To view the full report, visit https://www.lendingtree.com/home/mortgage/credit-score-recovery-after-buying-a-home/.
|Cities with the fastest credit score recovery|
|Rank||Metro||Average Initial Score||Average Decline in Score||Average Days in Decline||Average Days to Recover||Total Days|
|3||Salt Lake City||704||-15||139||132||272|
|26||San Jose, Calif.||725||-14||149||173||322|
|31||Kansas City, Mo.||698||-13||169||159||328|
|45||Virginia Beach, Va.||683||-20||183||175||358|
LendingTree (NASDAQ: TREE) is the nation's leading online marketplace that connects consumers with the choices they need to be confident in their financial decisions. LendingTree empowers consumers to shop for financial services the same way they would shop for airline tickets or hotel stays, comparing multiple offers from a nationwide network of over 500 partners in one simple search, and can choose the option that best fits their financial needs. Services include mortgage loans, mortgage refinances, auto loans, personal loans, business loans, student refinances, credit cards and more. Through the My LendingTree platform, consumers receive free credit scores, credit monitoring and recommendations to improve credit health. My LendingTree proactively compares consumers' credit accounts against offers on our network, and notifies consumers when there is an opportunity to save money. In short, LendingTree's purpose is to help simplify financial decisions for life's meaningful moments through choice, education and support. LendingTree, LLC is a subsidiary of LendingTree, Inc. For more information, go to www.lendingtree.com, dial 800-555-TREE, like our Facebook page and/or follow us on Twitter @LendingTree.