Altering credit habits in the time leading up to the closing of a mortgage can affect the outcome of the loan. Despite this, many mortgage borrowers—movers and refinancers—charge more to their credit cards before a loan closes, found a study by TransUnion, one of the three credit reporting bureaus.
“A long-held assumption among lenders is that new mortgage applicants spend less on their credit cards prior to their mortgage closing event—either to ensure their credit picture does not change or simply because they anticipate spending more once they move into their new home,” said Charlie Wise, co-author of the study and vice president of TransUnion’s Innovative Solutions Group, in a statement. “Our research indicates that millions of consumers actually increase their card spending in the months before the new mortgage origination. Whether it’s to purchase furnishings or make updates to their existing property, many consumers who move increase their spending before moving into their new residence.”
Results of the study show borrowers charge two to three times more to their credit cards in the months prior to the mortgage closing.
“Card spending increases are even greater for mortgage borrowers who refinance,” Wise continued. “These consumers may be anticipating lower mortgage payments, and take advantage of the greater available cash flow by increasing card spending in the months before their refinancing.”
The study analyzed the behaviors of more than 16 million prime or better-risk borrowers over two years.
Published with permission from RISMedia.