LendingTree : Study Finds Credit Scores Take Nearly a Year to Recover After Buying a House

CHARLOTTE, N.C., Oct. 31, 2018 /PRNewswire/ -- 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?"

Key findings:

• 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 (nine 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 consumers take out a mortgage, a large balance is added to their 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.

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

#2 Minneapolis

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

#49 Austin

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

#50 Milwaukee

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
1	Richmond, Va.	693	-13	136	130	266
2	Minneapolis	701	-11	136	131	267
3	Salt Lake City	704	-15	139	132	272
4	Providence, R.I.	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, Fla.	692	-13	159	145	304
15	Oklahoma City	678	-19	148	156	304
16	Birmingham, Ala.	671	-15	145	160	305
17	Buffalo, N.Y.	705	-15	165	146	311
18	Boston	714	-15	157	155	312
19	Portland, Ore.	704	-14	158	156	314
20	Hartford, Conn.	695	-14	166	148	314
21	Orlando, Fla.	694	-13	153	161	314
22	New York	710	-17	156	159	315
23	Las Vegas	682	-15	165	153	317
24	Denver	708	-17	168	150	318
25	Memphis, Tenn.	675	-13	187	132	319
26	San Jose, Calif.	725	-14	149	173	322
27	Indianapolis	690	-14	158	164	323
28	Atlanta	684	-16	158	165	323
29	Charlotte, N.C.	703	-14	160	165	325
30	San Antonio	668	-15	166	161	327
31	Kansas City, Mo.	698	-13	169	159	328
32	Washington	701	-14	159	171	330
33	Louisville, Ky.	691	-14	157	175	332
34	Jacksonville, Fla.	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, Tenn.	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, Calif.	701	-16	164	193	357
45	Virginia Beach, Va.	683	-20	183	175	358
46	Raleigh, N.C.	697	-16	180	184	363
47	San Francisco	724	-13	179	196	375
48	Riverside, Calif.	685	-17	180	195	375
49	Austin, Texas	687	-15	179	197	377
50	Milwaukee	700	-11	191	193	384

 

About LendingTree
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.

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