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
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Rank
Metro Average Average Average Average Total
Initial Decline Days in Days to Days
Score in Score Decline Recover
---
1
Richmond, Va. 693 -13 136 130 266
---
2
Minneapolis 701 -11 136 131 267
---
3
Salt Lake City 704 -15 139 132 272
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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
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12
Detroit 695 -14 144 153 297
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13
Miami 711 -16 145 154 300
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14
Tampa, Fla. 692 -13 159 145 304
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15
Oklahoma City 678 -19 148 156 304
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16
Birmingham, Ala. 671 -15 145 160 305
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17
Buffalo, N.Y. 705 -15 165 146 311
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18
Boston 714 -15 157 155 312
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19
Portland, Ore. 704 -14 158 156 314
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20
Hartford, Conn. 695 -14 166 148 314
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21
Orlando, Fla. 694 -13 153 161 314
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22
New York 710 -17 156 159 315
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23
Las Vegas 682 -15 165 153 317
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24
Denver 708 -17 168 150 318
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25
Memphis, Tenn. 675 -13 187 132 319
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26
San Jose, Calif. 725 -14 149 173 322
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27
Indianapolis 690 -14 158 164 323
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28
Atlanta 684 -16 158 165 323
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29
Charlotte, N.C. 703 -14 160 165 325
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30
San Antonio 668 -15 166 161 327
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31
Kansas City, Mo. 698 -13 169 159 328
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32
Washington 701 -14 159 171 330
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33
Louisville, Ky. 691 -14 157 175 332
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34
Jacksonville, Fla. 692 -15 162 170 332
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35
Chicago 695 -18 163 171 335
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36
Baltimore 695 -15 170 167 337
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37
Pittsburgh 695 -17 169 169 338
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38
Nashville, Tenn. 697 -15 165 181 346
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39
Los Angeles 713 -15 172 175 347
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40
San Diego 710 -14 175 173 348
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41
Phoenix 686 -16 175 175 350
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42
Seattle 708 -15 174 178 351
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43
Dallas 690 -13 173 183 356
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44
Sacramento, Calif. 701 -16 164 193 357
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45
Virginia Beach, Va. 683 -20 183 175 358
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46
Raleigh, N.C. 697 -16 180 184 363
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47
San Francisco 724 -13 179 196 375
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48
Riverside, Calif. 685 -17 180 195 375
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49
Austin, Texas 687 -15 179 197 377
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50
Milwaukee 700 -11 191 193 384
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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.
MEDIA CONTACT:
press@lendingtree.com
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