Credit Karma Answers: How Long Will My New Mortgage Negatively Affect My Credit?

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We often get questions from readers via Twitter (you can follow us here for financial tips and advice), and we try to answer as many as we can, or at least refer the asker to the right source. Here’s a great one we got recently from Allison in St. Louis, MO:

Q:

@LearnVest How long will my credit be negatively affected after buying a house? Applied for 0% interest for a couch and was declined. I have a great score but can’t get approved.”

woman in new home surrounded by boxes

Of course, Credit Karma has the answer! Read on:

A:

Your credit is definitely impacted when you buy a home, but it shouldn’t take long to bounce back so that you can apply for more credit.

Your credit score was likely affected by a few different credit factors after buying your home. The two main factors in your credit life that were affected were your number of hard inquiries and your debt to income ratio.

Number of hard inquiries: A hard inquiry is when a lender, credit card issuer or other financial institution requests a credit check in order to decide whether or not to extend a line of credit to you, such as a credit card or home loan. Each hard inquiry usually drops your credit score by a few points and will remain on your credit report for two years. If you applied with several mortgage lenders before getting approved, your score will have been further impacted.

Debt: The amount of debt you have accounts for 30% of your credit score. That includes revolving debt (like credit cards) and installment debt (like student loans and mortgages). Although your mortgage is “good debt” because it helps build your credit over time, the creditor may have been reluctant to extend credit to you because he saw your recent mortgage. (Should you ever get a second mortgage? Find out.)

What to Do Next

Knowing how your credit was affected by your new home is only half the battle. Because you’re interested in applying for more credit, there are a few steps you should take while your credit is recovering.

1. Get your credit score. Due to new regulations set forth on July 21, 2011, if you are declined on a credit application, you are entitled to see the credit score for free. The financial company backing the furniture company you applied for is required to show you your credit score as well as:

  • The credit score scale used
  • Up to four adverse factors that prevented them from approving you
  • The impact of the hard inquiry

2. Hone in on the factors you can control. Now that you know which adverse factors may have contributed to your getting denied credit, take some action. If any of the factors are within your control, focus on those, such as paying down debt.

3. Wait. Unfortunately, this is a necessary step in the process. Credit improvement doesn’t happen overnight. Not only has your credit recently been hit with hard inquiries due to mortgage hunting, but it also just received another hard inquiry when you applied for credit on the couch. The good news is that although the hard inquiries will remain on your credit for two years, their impact on your score will lessen after just a few months. (Find out two ways to protect your credit identity. Read this.)

4. Avoid applying for new credit. Although you want to fill your home with nice, new things, stick with items you can afford now instead. Rather than applying for more credit, give your credit score some time to recover. Cut back in other areas so you can save for affordable home furnishings and décor to make your new house a home.

Credit Karma™ is a completely free credit management service that provides free credit scores, financial education, and personalized savings recommendations. We help more than 3 million consumers realize the everyday cost savings of having a good credit score.

  • http://senseofcents.blogspot.com/ Michelle

    This is a great post.  I bought a house around 2 years ago and I noticed that it was affecting me.

  • http://www.blake.co.za/blog/ Jade

    Great information credit karma.

  • http://www.imperialstructuredsettlements.com Tiffany

    When I bought a house a few years ago I noticed that at first my score dropped but only slightly basically because I added a huge debt.  However after about 6-8 months of payments on the mortgage my score actually increased.  Not sure if it was the norm but ended up helping my score.

    • http://twitter.com/CreditKarma CreditKarma

      Hi, Tiffany! Although your mortgage initially dropped your score, it’s definitely normal that a mortgage will build your credit score over the long-term. Congrats on making moves to build your credit!