Gayle's Blog

When applying for a home mortgage, it is important to preserve the best credit score possible during the entire buying process. Many lenders will run a credit report at the beginning of the application process and then again at the end of the process. If a major purchase is made during this time, there could be a discrepancy in the credit score. The lowered credit score from the major purchase may be just enough to convince the lender not to approve the loan after all.

Why Do Credit Scores Drop With Major Purchases?

 

Major purchases cause a higher debt to income ratio. Even though the purchase could have been a trade in on a car with a resulting lower payment, the change in debt could still cause the credit score to drop. The drop may not be a few points either. In some cases, the credit score could drop a total of 15 to 20 points depending on the amount of new debt acquired.

 

While the drop does not always prevent the homeowner from buying the home, the interest rate could increase if the new credit score leaves them in a higher risk bracket. Just a few interest points could equate to thousands of dollars over the course of the mortgage.