Unfortunately, this is true—at least at first. Let’s suppose someone is applying for a mortgage. (More about how to qualify in the next section.) As part of the application process, the lender will do what’s called a hard credit inquiry. This means they will pull credit data and check the credit score.
A lender checking credit data signals that the individual is about to get a mortgage, which is one of the biggest pieces of debt most people will ever have. Just applying for the home loan can cause a drop of a point or two in the credit score.
Now let’s say the bank has approved the loan. It is not uncommon for new home buyers to see their credit score drop by 15, 20, or even as much as 40 points! The amount of the drop depends on the homebuyer’s perceived ability to pay the debt. If the credit score isn’t great to begin with, taking on a huge amount of debt compared to income will increase the impact.
It might seem unfair to be penalized for doing a grown-up and responsible thing like buying a house. But look at it from the lender’s perspective. Someone with a few credit cards that get paid off each month, plus a few thousand dollars owed on a car note, is suddenly responsible for a home loan for hundreds of thousands of dollars.
Especially if this is a first home purchase, that individual’s credit landscape has now changed drastically. Until the homeowner proves they can pay the debt, they will be seen as a risk, and that fact will be reflected in the credit score. The good news is that the credit score can bounce back, making their credit even stronger than before.