Tuesday, November 13, 2018


Banner Content

The way a mortgage affects your credit score is like a kick in the shin.

new study by LendingTree.

“If you have high utilization on credit cards or other credit lines, and then take a relatively large mortgage relative to your income and credit history, you can have a bigger decline,” said Tendayi Kapfidze, chief economist for LendingTree.

Gary Burchell | Getty Images

The study analyzed the credit scores of more than 5,000 consumers who took out a mortgage in 2015 and 2016. On average, scores took an average 160 days to hit their lowest point after the purchase of a house and another 161 days to return to their previous levels (nearly 11 months total).

Credit-reporting firms — i.e., Equifax, TransUnion, Experian — consider your overall debt burden as part of their calculation for your number. They also consider how well you’ve managed past debt, including whether you made payments on time. Generally speaking, the higher your score, the better terms you can get on a variety of consumer debt.

So while your score is reduced after taking out a mortgage, you might face paying a higher interest rate on, say, a new credit card or car loan.

“You might want to wait before taking on other credit obligations, if your score drops,” Kapfidze said.

Cities with fastest credit score recovery post-mortgage

City
Average initial credit score
Average decline in score
Total days until recovery
1. Richmond69313266
2. Minneapolis70111267
3. Salt Lake City70415272
Source: LendingTree

It’s worth noting, however, that it can take a couple of months after you settle on a mortgage for your lender to alert credit-reporting firms that you have the loan, according to LendingTree.

Credit scores range from about 300 to 850, with scores above 700 considered good or excellent. Someone with a fair credit score that falls between 580 and 669 will pay about $45,000 more in interest over their lifetime on loans and credit cards versus a consumer with very good credit score of 740 or higher, according to separate research from LendingTree.

Cities with slowest credit score recovery post-mortgage

City
Average initial credit score
Average decline in score
Total days until recovery
48. Riverside, Calif.68517375
49. Austin68715377
50. Milwaukee70011384
Source: LendingTree

The national average mortgage debt is $201,811 according to Experian data released earlier this year. However, some states (or local housing markets) come with averages far above that, including Washington, D.C., with an average mortgage debt of $406,035, and California, at $347,652.

In other words, that’s a lot of debt to add to your credit report.

More from Personal Finance:
Retirement on a Caribbean island can cost as little as $24,000 a year
If you’re planning to retire in 2019, here’s how to make sure you’re prepared
Financial planning as easy as booking a hotel room? Consumers say, ‘Yes, please’

The payoff, though, comes down the road when your credit score recovers and is poised to go higher — assuming you’ve consistently paid your mortgage and haven’t gone hog wild taking on new debt.

“Ultimately it will recover and get better because your mortgage shows other lenders that you’re a responsible borrower,” Kapfidze said.

0 Comments

Leave a Comment

Advertisement

Predator 21 x