How Will a Mortgage Loan Affect My Credit Score?
Buying a home is a significant financial investment. If you’ve been building your credit over the last few years, you may be curious as to how a mortgage loan might affect your credit score.
LendingTree just released a study on new homeowners. Participants reported an average drop of 15 points to their credit scores over the course of five months after purchasing a house. Mortgages typically do not show up on a person’s credit for 30-60 days, depending on how long it takes the lender to report the new loan.
Respondents said it took 11 months for their credit score to fully recover from the initial decline. This time frame varied by state, with some reporting as long as 13 months. The amount of the drop also varied by location, with some individual respondents seeing a 20-40 point decline in their credit scores.
Most credit score models use total debt as a factor in their scoring system. Thus, a rapid increase in debt, such as the purchase of a vehicle or a home, will temporarily lower the score.
But having a mortgage may ultimately improve your credit standing. A positive and consistent payment history will yield a higher credit score, and having a home loan increases the diversity of your credit profile. This may make it easier to get other lines of credit in the future.