Planning to apply for a mortgage? If you have an authorized user account reporting on your credit report, it could spell financial trouble if you’re applying for a home loan. Here’s the skinny…
Authorized User Credit Accounts
An authorized user account, is when another party adds you onto their credit account i.e a credit card, personal loan are the most common. For example mom or dad adds you to their credit card as an authorized user to help build your credit score. While this might have some short-term credit improvement advantages, consistency with the age of the account and the age of the borrower needs to needs to make sense at mortgage application. For example it would not jive a for 25-year-old mortgage applicant to have a credit account that is 15 years old.
Tradelines
A trade line is simply a credit obligation, it can be a credit card, a student loan, an auto loan, it’s any kind of consumer credit obligation, doesn’t necessarily need to contain balance, just has to be an open account, ideally in good standing. A closed out credit card does not count as an active current trade line and unfortunately has no financial significance to a mortgage lender deciding whether or not to grant you a home mortgage. Tradelines within the lending industry are also sometimes dubbed credit accounts.
When applying for a mortgage, a lender is going be looking for at least two open trade lines. Without any active trade lines, you probably don’t have a credit score, or if you do have a credit score, it is probably very low, because there is no active credit account supporting a healthy vibrant credit score, a necessity in securing a loan. In order to get a mortgage these days, you’re going to need a credit score of at least 620 for most loan programs, including the Conventional and FHA types.
Why An Authorized User Account Does Not Count As An Active Trade Line
Authorized user accounts may carry some financial benefit for improving a credit score in the short term, but if you are on someone else’s account, and they carry a balance with a subsequent monthly payment, your debt to income ratio could be adversely affected, resulting in less borrowing ability. Meaning you might not be able to purchase as much house or qualify for as much loan. A simple remedy to the situation would be to have the other party whose account you’re on simply remove you as an authorized user,thus allowing your mortgage broker to omit the liability from your name.
What To do If you Do Not Have At Least Two Trade Lines And Are Looking For Home Mortgage
Apply for credit, start with a cash secured credit card or a store credit card. The idea here is to get a trade line in your name alone without the authorized user status. Doing so, if you are are approved would show a short history of the account being as it was just opened, however, it still does count as an active trade line to meet mortgage standards thus allowing you to meet the two trade line requirement and/or support and better credit score.
Do Not Try To Work The System
The credit score generated from from each credit bureau for mortgage related purposes is not the same credit score you might get on the personal services credit report or credit report generated from say a car lender. The credit report a mortgage lender generates carries the most significance in terms of accurateness and is considered to be the standard in credit reporting. Moreover, a mortgage credit report contains all three scores, one from each bureau, commonly called a tri-merge credit report. Trying to game the system to gain an advantage, is not only potentially fraudulent, but won’t get you anywhere in terms of improving your ability to qualify for a mortgage. Play by the rules and apply for credit on your own, doing so will enable help your credit score, and may help you secure the additional trade line you might need necessary for approval. A good loan professional should be able to provide guidance in this capacity.
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