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3 ways buying a home in the US impacts your credit score

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Photo: Robert Clark

For most Americans, buying a home is likely to be both the biggest single purchase and largest financial transaction of their lifetime. And homeownership is part and parcel of the fabled “American Dream.”

But according to a recent study by LendingTree, while most prospective homebuyers know they should beef-up their credit scores prior to purchase to secure the best possible interest rates, most are not aware how the purchase will affect their score in the short- and long-term post-sale.

LendingTree, a leading online mortgage provider, studied the financial data of over 5,000 consumers who recently took out a mortgage to determine how homebuyers’ credit scores changed in the months following their purchases.

Its analysis found that most scores went down before they went back up. Individual credit scores included in the sample declined as much as 40 points and as little as just 11 points post-sale.

1. Initial drop

On average, scores dropped 15 points and took just over five months to reach their lowest levels. It can take about two months or longer for a mortgage loan to show up on a credit report and start impacting a borrower’s score.

“Mortgages do not appear on credit reports immediately after closing. Typically, the mortgage lender starts reporting to the credit bureaus after your first payment and depending on the lender’s reporting cycle,” reads the study.

LendingTree found that typically, New Orleans, LA homeowners saw their credit scores reach their lowest points in an average time of 133 days, while Milwaukee, WI homebuyers’ scores had the longest decline (191 days).

2. Recovery phase

Scores typically returned to prior levels after an additional 161 days, provided borrowers made payments on-time.

“As time passes, making on-time payments helps a borrower improve their credit score as they demonstrate they are managing their new mortgage account well. Having a mortgage also increases the diversity of accounts in the credit file, which also boosts the score,” reads the study.

At an average of 130 days, buyers in Richmond, VA saw credit scores rebound the fastest, while the rebound for homeowners in Austin, TX lasted an average of 197 days.

3. Surging to new heights

Nearly a year post-sale, most financially responsible homeowners saw their credit scores not only recover, but climb to new heights.

“Eventually, the score returns to its pre-mortgage level and in most cases, surpasses it,” reads the study.

Richmond homebuyers saw their credit scores go through the recovery cycle the fastest (nine months), while scores in Milwaukee took the longest at roughly 13 months.

While there’s nothing consumers can do about the negative effect taking out a mortgage has on individual credit scores, LendingTree advises consumers to focus on the areas that are within their control — keep making all payments on time, avoid applying for new credit, and keep your credit card balances low.

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New home? Prepare for the unexpected

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(NC) Buying a house, getting married or having your first baby are all major life events that are likely to affect your finances. But whether you’re in the midst of a major life event or not, it’s important to check in on your finances regularly to maintain good financial health.

Your financial health encompasses things like your spending, savings, borrowing and future financial plans. It also means dedicating a set amount of savings for unexpected future events. It can even include optional credit protection insurance, such as TD protection plans, to help cover your debt balances in case of death, a covered critical illness or total disability.

Even though it can be tough to think about the unexpected, life is unpredictable and it’s important to plan for the unexpected. Find more information at td.com.

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Mortgage pitfalls to avoid

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(NC) Throughout life, you may have moments where you’ll make a large purchase or invest in a costly item, like your family home. But whether you’re in the market for your first new property or already have a mortgage, leaving this asset unprotected can be costly.   

Insuring your housing financial debt, as well as debt for other big-ticket items like a new boat for your lakefront cottage or keepsake jewelry like an engagement ring, is a smart investment in your well-being.

To help protect your debt balances like a mortgage, your bank may have optional credit protection insurance products.

“Your home is one of your biggest assets, yet illness can happen at any stage of life. Worrying about your mortgage when the focus should be on health isn’t a situation anyone would wish for,” explains Shirley Malloy, vice president at TD. “Fortunately, we offer mortgage protection to provide coverage for your outstanding balance should you face a covered critical health event.”

Mortgage protection can be purchased whether you’re in the process of applying for a mortgage or already have a home financing solution. But what about protection options for credit card debt?

“Given the unprecedented circumstances of this year, many Canadians are trying to plan for the unexpected to protect themselves and their finances,” says Malloy. “TD balance protection plus is an optional product designed to help you deal with your credit card payment obligations in the event of a covered event, such as loss of employment.”

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Is your internet too slow? It’s probably not you

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(NC) We all know the aggravation of a school lesson that just won’t stop freezing or the family video call that looks more like a photo montage. And, as we adjust to the impact of COVID-19 on our day-to-day, that slow connection can have frustrating consequences.

Working from home and learning remotely, both need fast, stable internet, something not enough Canadians have yet. Even if you have fast devices in your home, if the infrastructure in your area is not optimal, your connection won’t be either.

Right now, cities have the infrastructure needed to ensure access. But rural and remote communities are hugely underserved, with fewer than half having high-speed internet, and fewer than a third of households on reservations have high-speed connections.

Fortunately, change is coming. The Universal Broadband Fund is backing projects across Canada right now to ensure the reliable, high-speed internet connections families need to work, study, access services online, and safely stay in touch with each other.

The fund existed before COVID, but as a response to the pandemic, its timetable has been moved up by four years to a target of 98 per cent of Canadians with high-speed internet access by 2026. With the faster pace, at least 90 per cent of us should be connected by the end of 2021.

The fund is focused on improvements in rural and remote communities across Canada to fix the disconnect between internet access for urban and rural households.  This means more remote work opportunities, better access to remote learning and safer access to healthcare, no matter where you live.

It’s not just for good connections at home, either. The improvements mean much better access to mobile networks on highways between remote communities. The result is better, safer navigation and access to emergency services for your family, even on the road in the middle of nowhere. Mobile projects will be focused on serving Indigenous communities and the roads leading to them.

The shape these improvements will take in your area will depend on where you live. Canada is huge, and its communities are hugely diverse, with diverse needs. Keep an eye out for local projects — they’re a small part of something much bigger.

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