Here’s how buying a house affects your credit score

November 26, 2018

A house is the biggest purchase most people make in their lifetime, with the accompanying mortgage being their largest financial transaction. Most people know that 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 mortgage’s amount and borrowing cost.

But what happens to your credit score after you get a mortgage?

A new analysis looked at more than 5,000 consumers who took out a mortgage and how their credit scores changed in the months following.

Our study shows that scores initially fall, but eventually recover.

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Key Findings

Scores fall for at least 4 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 your first payment (depending on the lender’s reporting cycle). Therefore, it may take about 60 days after closing (or even longer) for it show up and start affecting a score. New Orleans homeowners, for example, saw their credit scores reach their lowest points in an average time of 133 days, while Milwaukee home buyers’ scores had the longest decline: 191 days.
Recovery takes at least another 5 months. It took an average of 161 additional days for scores to return to their prior levels. As borrowers make payments on time, their credit scores start to recover. In Richmond, Virginia, buyers’ credit scores rebounded fastest at 130 days, while the upward climb for homeowners in Austin, Texas lasted 197 days.
11 months later, scores recover and are poised to move higher. The national average for the complete decline and recovery cycle was 11 months. Richmond home buyers saw their credit scores go through the cycle the fastest (nine months) while the dip and return of Milwaukee buyers’ scores took the longest (13 months).
Tight range of score declines. The average score fell the most in Virginia Beach, Virginia (down 20 points), and the least in Minneapolis at just 11 points. Individual credit scores in the sample declined by 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 that 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, we took a look at the variation in credit scores across the 50 largest cities in the U.S. These aggregate numbers give an excellent view of the effects buying a home can have on credit scores. We used data from My LendingTree.

Cities with the fastest credit score recovery after getting a mortgage

1. Richmond, Virginia

Average initial credit score: 693
Average decline in score: 13
Total time until recovery: 266 days

2. Minneapolis

Average initial credit score: 701
Average decline in score: 11
Total time until recovery: 267 days

3. Salt Lake City

Average initial credit score: 704
Average decline in score: 15
Total time until recovery: 272 days

Cities with the slowest credit score recovery after getting a mortgage

48. Riverside, California

Average initial credit score: 685
Average decline in score: 17
Total time until recovery: 375 days

49. Austin

Average initial credit score: 687
Average decline in score: 15
Total time until recovery: 377 days

50. Milwaukee

Average initial credit score: 700
Average decline in score: 11
Total time until recovery: 384 days

50 largest cities ranked by time for credit score to recover

Rank	Metro	Average Initial Score	Average Decline in Score	Average Days in Decline	Average Days to Recover	Total Days
1.	Richmond, Virginia	693	-13	136	130	266
2.	Minneapolis	701	-11	136	131	267
3.	Salt Lake City	704	-15	139	132	272
4.	Providence, Rhode Island	691	-12	139	136	275
5.	New Orleans	686	-13	133	147	280
6.	Houston	688	-15	147	136	284
7.	Cleveland	699	-13	145	140	285
8.	Columbus, Ohio	697	-12	142	149	291
9.	Cincinnati	694	-19	154	141	294
10.	St. Louis	711	-15	143	151	295
11.	Philadelphia	701	-17	161	136	297
12.	Detroit	695	-14	144	153	297
13.	Miami	711	-16	145	154	300
14.	Tampa, Florida	692	-13	159	145	304
15.	Oklahoma City	678	-19	148	156	304
16.	Birmingham, Alabama	671	-15	145	160	305
17.	Buffalo, New York	705	-15	165	146	311
18.	Boston	714	-15	157	155	312
19.	Portland, Oregon	704	-14	158	156	314
20.	Hartford, Connecticut	695	-14	166	148	314
21.	Orlando, Florida	694	-13	153	161	314
22.	New York City	710	-17	156	159	315
23.	Las Vegas	682	-15	165	153	317
24.	Denver	708	-17	168	150	318
25.	Memphis, Tennessee	675	-13	187	132	319
26.	San Jose, California	725	-14	149	173	322
27.	Indianapolis	690	-14	158	164	323
28.	Atlanta	684	-16	158	165	323
29.	Charlotte, North Carolina	703	-14	160	165	325
30.	San Antonio	668	-15	166	161	327
31.	Kansas City, Missouri	698	-13	169	159	328
32.	Washington	701	-14	159	171	330
33.	Louisville, Kentucky	691	-14	157	175	332
34.	Jacksonville, Florida	692	-15	162	170	332
35.	Chicago	695	-18	163	171	335
36.	Baltimore	695	-15	170	167	337
37.	Pittsburgh	695	-17	169	169	338
38.	Nashville, Tennessee	697	-15	165	181	346
39.	Los Angeles	713	-15	172	175	347
40.	San Diego	710	-14	175	173	348
41.	Phoenix	686	-16	175	175	350
42.	Seattle	708	-15	174	178	351
43.	Dallas	690	-13	173	183	356
44.	Sacramento, California	701	-16	164	193	357
45.	Virginia Beach, Virginia	683	-20	183	175	358
46.	Raleigh, North Carolina	697	-16	180	184	363
47.	San Francisco	724	-13	179	196	375
48.	Riverside, California	685	-17	180	195	375
49.	Austin, Texas	687	-15	179	197	377
50.	Milwaukee	700	-11	191	193	384

Improving your credit score after buying a home

There’s nothing you can do about the effect your new mortgage will have on your credit score, but you can focus on other areas of your credit profile to make sure that your score doesn’t fall further. Avoid applying for new credit and keep your credit card balances low. This could be a challenge — you’ll have moving expenses and a new house to furnish — but using as little of your available credit as possible is key to improving your credit score. The closer you get to maxing out your credit cards, the more your credit score will drop. Of course, ensure that you also make on-time payments on all of your debts.

Methodology

To determine how buying a home affects credit score, we used LendingTree’s proprietary financial intelligence platform, My LendingTree, to look at over 5,000 consumers who bought homes in 2015 and 2016. My LendingTree tracked credit scores from when borrowers took out a mortgage until the score returned to its pre-mortgage level, and aggregated for each city. Our definition of cities is from the Census Bureau’s Core-Based Statistical Area (CBSA) boundaries.

This article originally appeared on LendingTree.com and was syndicated by MediaFeed.org.

Featured Image Credit: DepositPhotos.com.

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Last modified: November 26, 2018

Here’s how buying a house affects your credit score

Key Findings

Why new mortgages affect credit scores

Cities with the fastest credit score recovery after getting a mortgage

Cities with the slowest credit score recovery after getting a mortgage

50 largest cities ranked by time for credit score to recover

Improving your credit score after buying a home

Methodology

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