Will Credit Cards Help Me Land A Mortgage?

Well? Yes and No, read on….

Like it or not, your relationship with money can be best summed up on paper by how much consumer debt you carry, more specifically in the form of credit cards. Credit card debt is a double-edged sword, especially on high ticket items, like a house purchase. On one end, having open credit lines with no debt increases a credit score reducing your cost of borrowing money, making you eligible for more loan programs, on the flip side  payment obligations reduce ability to qualify lowering how much house you can buy. Here’s the lowdown gang….

How Credit Cards Help Your Ability To Land A Mortgage

Credit cards paid current with no lates or delinquencies improve a credit score opening up more low cost loan programs.

Lenders typically want at least three open credit accounts, credit cards are a common form of a trade line such as a line with a department store for example or even basic Discover card.

  • Are reported to the credit bureaus, sometimes just one or two bureaus, very beneficial to a credit score assuming perfect payment history
  • Assuming no derogatory or late payments, credit card obligations show a pattern of consistent payment history- a plus in the eyes of the scruplous lender
  • With no balances, shows lender consumer has “good character” an important aspect of lending

How Credit Cards Hurt Your Ability To Land A Mortgage

*Mortgage Tip: Credit cards when not properly used have a stronger propensity to reduce your ability to land a mortgage than they do to improve it

  • Credit card companies are required by law to report the minimum monthly payment due associated with any balances carried. If the minimum payment is $150 per month, that what will show up on your credit report and that’s the amount the lender will use on a dollar in-dollar out basis. Because the debt is there how much you can borrow in terms of total house payment will be limited by $150 per month. Granted $150 per month  is small in the grand scheme of things, but the payment will dollar for dollar reduction in your eligible mortgage payment.
  • Have a credit card late? This will tank your credit score, increasing the costs to borrow mortgage money making your loan more costly. * Note,  a credit card late every now and then happens, its but the consistent pattern of lack of repayment over time, is what really drops the credit score greatly increasing loan costs, jeopardizing your chances of an approval.
  • Credit card charge-offs still reporting a balance on your credit report will need to be zeroed out in order for you to successfully fund your new home loan. Talk to your mortgage lender first.

Best Practices To Managing Credit Cards To Land The Lowest Cost Mortgage And Get Approved

Credit cards both hinder and help your ability to get a mortgage, bottom line. The ideal consumer mortgage scenario would have no credit card lakes of any kind in the last 12 months and no balances/payments due. Paying off your credit card in full every month? Make sure you know when they report to the mortgage lender, so you can have the mortgage lender pull your credit report for the mortgage after that date so as to preserve high credit score while still showing no debt. Also, if there is multiple credit cards and you have the ability to consolidate the credit cards which would reduce your minimum payment obligations, take action. Lenders are looking for how much of your income goes to debt.

If you are trying to get you are trying to land a mortgage and have been unsuccessful or just have questions about what it takes to buy a house, we can help. Start today by getting a Santa Rosa mortgage rate quote online and for free right now!

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5 Comments

  1. […] you accumulate debt on a credit card it becomes a payment liability if it’s not paid off entirely. Creditors like major banks, […]



  2. […] you accumulate debt on a credit card it becomes a payment liability if the balance is not paid off in full. Creditors like major banks […]



  3. […] still use the credit score model developed by Fair Isaac’s & Co., often coined ‘Fico Score’. Fair Isaac’s […]



  4. […] Why It’s an Issue: If you’re planning on getting a mortgage in the near future, don’t let the short-term 0% credit card offer fool you into thinking it’s OK to run up debt on that card. Why? You’ll still need to make that payment every single month. It doesn’t matter if your balance is $100,000 at 0% interest, it’s about the payment, and the lower the payment, the better. A lender wants to see that the minimum payments are very low in relationship to the income. Payments are king for the granddaddy of credit, a mortgage loan. […]



  5. […] get the benefit of having an open credit line reporting favorably to the credit bureaus. Closing credit cards sends an artificial signal to the credit reporting agencies (CRA’S), that you cannot manage […]



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