Credit scores often take about 11 months to fully recover after a consumer purchases a home, according to a new study by LendingTree, an online loan marketplace.
After a buyer purchases a home, their credit scores fall by an average of 15 points, but it takes 160 days—or slightly over five months—for the full impact to take effect.
The analysis showed that after the full drop, recovery takes an average of another five months. For most borrowers, it took an average of 161 more days for scores to return to their prior levels. About 11 months later, credit scores tended to be fully recovered and were often higher, too.
“When a consumer takes out a mortgage, a large balance is added to his credit report,” LendingTree researchers explain in the 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.”
Borrowers’ credit scores recover as they make on-time payments. Having a mortgage also increases the diversity of accounts in the credit file, so borrowers can eventually see a boost to their scores from it.
LendingTree researchers evaluated the variation in credit scores across the country’s 50 largest cities to find where home buyers saw the fastest recovery to their credit scores after getting a mortgage. Those cities are:
1. Richmond, Va.
- Average initial credit score: 693
- Average decline in score: 13 points
- Total time until recovery: 266 days
- Average initial credit score: 701
- Average decline in score: 11 points
- Total time until recovery: 267 days
- Average initial credit score: 704
- Average decline in score: 15 points
- Total time until recovery: 272 days
- Average initial credit score: 685
- Average decline in score: 17 points
- Total time until recovery: 375 days
- Average initial credit score: 687
- Average decline in score: 15 points
- Total time until recovery: 377 days
- Average initial credit score: 700
- Average decline in score: 11 points
- Total time until recovery: 384 days
Source:
“LendingTree Reveals How Buying a House Affects Credit Scores,” LendingTree (Oct. 31, 2018)
