Mortgage Application Factor: Credit Cards

 

Buying a Home is a Huge Investment. Make Sure You're Ready.

 

Purchasing a house is the single largest purchase and investment you will make in your lifetime. When you are ready to apply for your mortgage, make sure that you are aware of all the factors that can affect your ability to qualify for a mortgage approval. In our last blog installment we covered the importance of your credit reports. Today we will cover one of the biggest factors, your credit card usage.

 

How Does Credit Card Usage Factor Into a Mortgage Application?

 

Credit cards are considered revolving lines of credit. These lines of credit will normally have a certain amount of available credit for an undetermined amount of time. The debt, or used balances, can be paid in full or in minimum payments, and can be borrowed again once it has been repaid. Due to the fact that balances can fluctuate month to month, the credit scores can also fluctuate with them. Credit cards can be a major credit score booster as long as they are utilized responsibly.

 

How to Benefit From Responsible Credit Card Use

 

To ensure you benefit from credit card usage follow these simple rules:

 

Pay off balances on time.

 

If you can aim to pay off your balance before your due date even better! Avoid any late fees, or worse, late payments from reporting on your credit. Your payment history is the biggest factor considered on your credit report, and one single late payment could affect 35% of your credit scores.

 

Avoid high balance to limit ratios.

 

Balances over 30% of your credit limit become a major risk factor and consequently lower your credit score.

 

Always pay your balance off to zero.

 

Not only will this help with balance to limit ratios, but additionally it will help you avoid interest charges from carried over balances. This will additionally help keep your debt to income ratio as low as possible.

 

Do not close your credit card once you have finished paying it off.

 

Your length of credit history helps build your scores. By closing the credit card you risk your credit scores dropping from loss or lack of credit history.

 

Always have one credit card opened that reports to all three major credit bureaus.

 

Again, credit cards help build your length of credit history. Loans may come and go, but you can always rest assured knowing your credit card is constantly building credit history for you.

 

Don’t apply for unnecessary credit cards.

 

Many stores may ask you to apply to save! Each application you submit will add an inquiry to your report which can consequently drop your credit scores.
If you currently do not have a credit card opened, visit our credit card resources section for options for consumers who are looking to rebuild their credit.

 

Let Credit Cards Work For You, Not Against You

 

A credit card alone can make or break you in the process of qualifying you. Ensuring that you are using credit cards to help benefit your scores will help make the home loan process much easier. Check out our other checklists Qualifying for Your Home Purchase and Purchasing the Right Home, for more information on the home buying process. Join us next time as we will cover the next important factor, debts.

MSI Credit Solutions provides superior credit restoration and comprehensive consulting services that are reliable and affordable. For any questions or to schedule a free credit consultation, contact us at (866) 217-9841.

 *The information in this article has been provided strictly for educational purposes.