Buying a House Can Lower Your Credit Score, and Recovery Can Take Months
November 12, 2018
Potential home buyers keep a close watch on their credit scores, hoping to maintain a high enough score to qualify for a loan at a good rate. What many may not know, however, is that once that loan is secured, buyers can expect to see a drop in their credit rating. That drop will be 15 points on average, but could be as high as 40 points, according to a new study by Lending Tree.
Credit scoring agencies look at how much a potential borrower owes. A mortgage drives up the total debt a borrower has, and this drives their score down accordingly. However, as time passes, on-time payments show that the borrower is managing their mortgage well, and their scores will rise. In most cases, it will even surpass their original score.
The study found that, on average, scores will fall for about five months, and then take a little over 5 months to climb back up to their original level. This means that it will take almost a year for your credit score to sort itself out after buying a home.
The study cautions against taking out new credit obligations during that period. If you were to take out a car loan or get a new credit card, it would be based on your current credit card, which means you may face higher interest rates than you would otherwise.