How Long Will it Take My Credit Score to Recover After A Mortgage? Here’s The Answer

Everyone wants to increase their credit score, which is the rating computed by credit firms to assess one’s ability to pay debts. This number is important because it can become a deal-maker or a deal breaker when it comes to determining a consumer’s creditworthiness.

In short, the higher your score is, the higher the chance of your loan getting approved. Needless to say, having a low credit rating means lenders will likely decline your loan or give you a higher interest rate. Perhaps one of the biggest reasons people rely on this rating is for securing mortgages.

Best Credit Score

Credit ratings usually range from 300 to 850 with a perfect score being 700 or above. Anything below 600 is considered a poor credit score, whereas 600 to 649, slightly acceptable, but still very average. If you fall in the 650 to 699 range, your score may be considered fair.

Lendingtree’s chief economist Tendayi Kapfidze explained that you will have a higher chance of getting declined by a lender if you have high credit utilization through credit cards and credit lines. This will directly correlate with your credit history and income.

For example, if you’ve built a good reputation and therefore earned a high credit score, you can use it to secure a house loan with more attractive interest rates. However, if you’ve been approved for the mortgage, your rating will automatically drop. A LendingTree study said that on average, there is a 15-point decrease in credit rating after the approval of a loan application, although may homeowners point out that they’ve experienced a drop of up to 40 points.

Securing a house loan will cause your credit score to drop, but don’t worry, it will recover in time

Duration of Recovery

The question now is, how long will it take for your credit score to recover? The research focused on 5,000 people with a mortgage secured in 2015 and 2016. The study found out that it can take up to 160 days, or over five months, after buying a home for the credit score to drop to its lowest whereas, it can take 161 for the score to return to its normal levels.

All in all, it took about 11 months for credit score to normalize. However, take note that it takes time before lending companies inform credit-reporting firms, such as TransUnion, Equifax, and Experian, that you have gotten a loan, as evident in the survey.

At the time of calculating your credit score, the credit firms also take you credit rating into account. Have you been late in paying your debts? Have you maxed out your credit limits? They will consider all these factors and analyze how you handle your debt. Kapfidze advised to not get into any other loans or debts when your score is already low. This is because a new loan will have higher interest rate if you have just bought a house.

Photo: It is better to wait until your credit score gets back to normal level before getting another loan

In short, it is best to wait for your credit score to soar again before getting into another liability. Assuming you have been good at handling your mortgage payments and haven’t taken the risk of getting another loan while your credit score recovers, it will only benefit you in the long term. Once you apply for a loan again, lenders will see that you completed your previous obligations on time and will offer even better interest rates in the future.

Ways to Increase Credit Score

For those who want to increase their credit scores, here are some tips: first, do not be late for your loan payments, whether it is for mortgage or a personal loan. According to a report, Delaying a single payment can be detrimental for your credit score and cost you 60 to 110 points.

Maxing your credit card can reduce your credit score which can hurt your chances of getting a loan in the future

Second, always pay off one debt before getting into another one. Managing your finances can get harder if you have lots of debts, so it’s best to handle what you can and avoid running away from your responsibilities.

Third, never exceed your credit card’s limit on expenses that aren’t urgent. Shopping for bags, shirts, shoes, or watch can be fulfilling in the short run but it’s important to be mindful of your budget and not spend money that you don’t have. Stick with 30 percent or less of the allowed credit to give a nice impression.

Lastly, check your credit reports regularly because the Federal Trade Commission said 20 percent of consumers have errors in their reports which affect their ratings.