Credit Cards and Mortgage Qualification

Discussion in 'General Discussion | Credit Cards' started by flynhwn, May 27, 2014.  |  Print Topic

  1. flynhwn

    flynhwn Silver Member

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    First of all it is correct that you don't want to get new credit cards before you apply for a mortgage. It is seen by the bank as you needing a source of credit (debt).
    The biggest problem is if you have a lot of credit cards the bank sees it as debt. It doesn't matter if you pay it off every month they look at the credit line. The question to them is if you charged them all to the limit can you pay them and your mortgage.
    What we did was to cancel a bunch of cards and reduce the line of credit on others.
    The big problem is that we opened a credit card during the loan process- to get miles of course. This explanation was not easily received by the loan officer.
    The best advise would be get to know a loan officer and get the details of their particular company. Over lunch seems to get the info flowing better.
     
  2. glocklt4

    glocklt4 Active Member

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    I don't think closing the cards was a wise idea. I used to think what you did when I got my house 10 years ago, that by having all this open credit they would think that I could go spend it at any time and not be able to pay my mortgage, but that is not the case. By closing your cards you probably increased your utilization % and lowered your score which hurt. Your use of that credit over the past few years is much more important than the amount of credit line combined.

    You definitely don't want to get 5-6 cards every 3 mo for 1-2 years before you apply for a mortgage because that will be hard to explain and keep your credit lower overall more than likely, but there shouldn't be an issue with one or two, here or there. Just don't do an App o' Rama...
     
    Last edited: May 27, 2014
    mommafrica and daninstl like this.
  3. daninstl

    daninstl Gold Member

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    We just closed on a mortgage for our 2nd home (1st is still for sale) and we have been churning cards the last year, about 2 per quarter. Since we don't owe much on any of them we have tons of available credit and good FICO scores in the 750 range. It didn't seem to effect our loan process even after applying for a couple during the loan process. It seems that it's a case that banks don't want to loan money to people who need loans they want to loan money to people who already have tons of credit they don't use.
     
  4. mommafrica

    mommafrica Silver Member

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    Hello. My question is that I want to refinance my house but I want to apply for the Chase Slate and make some transfers. Will applying for this hurt me? I'm currently in the high 760's.
     
  5. flynhwn

    flynhwn Silver Member

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    I don't carry any balance on my cards so closing some down didn't affect my credit utilization rate. I guess I could have kept the cards and lowered my credit line but.. They certainly didn't like the fact that I got a new card just before approval of the loan. It delayed the process a little over a week.
     
  6. Counsellor
    Original Member

    Counsellor Gold Member

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    It isn't a matter of carrying a balance. Unless you never use any of your cards (in which case you have bigger problems because of a thin credit history), closing cards *always* increases the credit utilization rate over what it would have been had the card not been closed. Indeed, a credit pull shouldn't show whether you carry a balance or pay it off in full each time, so long as you do make the payments as agreed. The question the utilization rate answers is what percentage of your available credit you're using at that particular moment in time.

    There has been only one time where carrying or not carrying a balance on a credit card may have made a difference in my search for credit. I was applying for a mortgage (after the days of the Liars Loans where banks didn't seem to care whether you could pay off the loan or not) and the bank pulled my report and noticed one of the credit cards had an unusually high balance that month. They asked me for a copy of my credit statement on that account, and when I asked why, they said it was to see whether I paid off the balance, or had carried it over with just paying the minimum payment. As it turned out, it was a legitimate nonrecurring expense that I did pay off in full, and I got the mortgage at the favorable rate I was seeking. (I have no idea whether I'd have been denied had I made only the minimum payment, or offered a higher rate of interest, or what -- it might have had no actual effect.)
     

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