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.
Barbara started in Real Estate in 2006 after another Realtor told her that her personality made her a perfect fit for the industry. There is no doubt that Barbara’s lively personality and warm heart make her an awesome Realtor. Barbara was born in Italy and speaks fluent Italian. She grew up in Medford and eventually moved to Everett where she resides today. Her personality combined with her background in home insurance and customer service make her experienced in multiple facets of Real Estate and willing to work hard to help her clients achieve their goals. In my spare time I volunteer at animal shelters and foster dogs until we find their forever home. I am also proud to say that with every transaction I complete, a portion of my commission is donated to a local animal shelter.
