Many potential homeowners wonder about the benefits of paying off a credit card before their new mortgage closing date. While paying off debt before applying for a loan is generally a good idea, there are other ways your credit can affect your mortgage approval and terms.
Here is some basic information to know about credit card debt and a mortgage:
Taking out new credit, whether it's opening a new card or retailer-specific line of credit, can negatively affect your credit score. While the damage might be temporary, timing is everything - increasing your credit limit and debt to income ratio before applying for a loan may show mortgage lenders you're too much of a risk.
Closing an existing credit card can also impact your credit score. Overall, most mortgage lenders prefer a stable, even credit history without any major, recent changes.
The minimum credit score requirement for a mortgage depends a bit on the type of loan you get. For example, conventional loans not backed by government programs require a score of at least 620. While it's possible to get approval with a lower credit score, you may end up with a much higher interest rate and monthly mortgage payments.
Both FHA and VA loans offer more flexibility when it comes to credit report requirements. A government loan may only require a score of 580. However, these can come with higher interest rates as a consequence.
If you want to open a new credit card, experts recommend waiting one full business day after closing at the very least. However, it's important to consider the lasting effect on your credit report. While your score can decrease quickly, it can take a long time to build back up again. Keep this in mind when making credit card account decisions after closing on a home purchase.
Ted draws energy and joy from building synergetic relationships with his Clients. Ted's nature is graciously gregarious and persevering; he's honest; and he's been dedicated to a substantial list of clientele throughout his 25 years in the hospitality business and almost two years as a REALTOR. His passion is creating a sincere, successful relationship with people.
Ted grew up in a family of Realtors in central Indiana, earned a degree in economics and philosophy from the University of Notre Dame, and jumped into all aspects of the restaurant business. His ensuing hospitality career path eventually led him into the Event Management Sales & Service role in hotels and quickly guided him to Los Angeles, San Francisco, and finally to a luxury resort in the Napa Valley, where he, his husband, and their dog have resided for almost a decade now.
The irony is not lost on Ted that his ‘growth’ journey has culminated in“living happily ever after” in an agricultural area with a small-town feel and sense of community strikingly reminiscent of his youth…and as a REALTOR nonetheless!