Study Reveals A Home Loan Pushes Lower Credit Score
Effects of Mortgage On Credit Score
The duration over which your credit scores has to go till it hits the bottom is over 5 months and climbing back up is about that same period. Taking out a new loan or credit card while you still have low score could cause you to pay back at a higher interest as compared with what you would pay if you wait till the number climbs up.
The effect of a mortgage on your credit score can be very drastic. If you wait till your score is sufficiently good enough to make you qualified to get a home loan, that purchase will, in turn, cause your number to go down. According to LendingTree’s newly released study, the drop on an average is 15 points even though the score slide of some consumers can be as high as 40 points.
According to LendingTree’s chief economist, Tendayi Kapfidze, having high utilization on your credit cards or any other credit line and going ahead to take a mortgage which is relatively large compared to both your income and your credit history can lead to more significant decline.
The study took into consideration credit scores of over 5,000 consumers that took out mortgages in the year 2015 and also 2016. On the average, the credit scores spent an average of 160 days before falling to the lowest point following the house purchase. It also took another average of 160 days before it returned to the former levels bringing it to a total of almost 11 months.
The credit reporting firms, i.e. Experience, TransUnion and Equifax generally consider the total debt burden when they are calculating a person’s numbers. In addition, they consider the extent to which a person has been able to effectively manage debt in the past and that includes how soon you made the necessary payments.
On a general outlook, the higher a person’s score, the better the terms a person can get on a different range of debts. In essence, if the score reduces after you take out a mortgage, then you have to pay a higher interest rate in a car loan or a credit card. Kapfidze advises that when the credit score drops, people should wait before they take on additional credit obligations.
Cities With Fast Recovery Time
There are some cities that have fast recovery time for credit score after mortgages as compared with other cities. The average initial score in Richmond is 693 and the average decline in the credit score here is 13. In total, there are 266 days till recovery. Also, Minneapolis has a fast recovery. The average initial score here is 701 and the average decline in the credit score is 11. In total, there are 267 days till recovery in Minneapolis. Lastly, the average initial score in Salt Lake City is 704 and it has an average decline credit score of 15. In total, there are 272 days till recovery here.
It is pertinent to, however, note that the period of time it takes after settling on a mortgage before your lender goes ahead to inform the credit reporting firms can run into months. LendingTree reports that the credit scores are between 300 and 850 and scores higher than 700 is considered to be good or even excellent.
A person who has a fair credit score between the range of 580 and 669 will get to pay nearly $45,000 extra as interest all through their lifetime on credit cards and loans as compared to those consumers that have a good credit score which is 740 and above as indicated by a different research conducted by LendingTree.
Making Payment On Your Mortgage
The result of an Experian data that was released earlier in the year revealed that the on an average, the national mortgage debt comes in at $201,811. The research, however, found that some states have averages that are higher than that. For instance, Washington D.C’s average mortgage debt is $406,035 and that of California is $347,652. That translates to lots of debt added to the credit report.
However, if you consistently make payment on your mortgage and you don’t take on new debt then the credit score will recover. According to Kapfidze, the credit score will ultimately recover and perform better since the mortgages help the lender know that you are responsible as a borrower.
More in Investments
Johnny Depp is Apparently Broke! Here’s How He Scorched His Entire Fortune
Back when the Pirates of the Caribbean franchise was the hottest thing in town, the movies’ main man, Johnny Depp, was...June 20, 2019
Reason Why Financial Advisors Need to Adapt to the Tech World
Most people think that money makes the world go round, this may be true in a way especially for those who...June 20, 2019
How Much a $1000 Investment in Apple 38 Years Ago Would be Worth Today
Current Worth Of Investment Apple recently debuted a new set of its updated products. The products include one MacBook Air and...June 20, 2019
Shell Reports Biggest Profits in 4 Years as Oil Prices Rise to Astronomical Levels
Royal Dutch Shell recently disclosed its third-quarter earnings, reporting a 37 per cent increase in revenue and highest profits in the...June 20, 2019
Gone with the Wind! Here’s How Mel B Lost Her Enormous Fortune
The English pop girl group, the Spice Girls, established their dominance with their debut single Wannabe which hit the airwaves in...June 20, 2019
Don’t Refinance Your Home without Doing These Five Things
Thinking of giving your home a major renovation or take advantage of low mortgage interest rates? Some might tell you that...June 20, 2019
Pro Tips for Building a Successful Investment Portfolio
Everyone wants a shortcut to success and happiness in life, and we often seek out secret tips and tricks that can...June 20, 2019
How to Prepare for an Unexpected Early Retirement
One of the reasons why people work so hard is so that when they retire, they would have enough money to...June 20, 2019
Kim Kardashian is Serving Some Serious Financial Advice, And We All Need to Take Note
Thanks to Vogue, Kim Kardashian’s fans have been able to explore the reality star’s Hidden Hills home, where she lives with...June 20, 2019