The Home Buying Experience

Why You Should Never get a Credit Card When Applying for a Mortgage

How Credit Cards Can Interfere with Your Mortgage Loan

When purchasing a new home, opening a few new credit cards might seem like a good plan for any unexpected expenses that may pop up in the process. However, mortgage experts suggest refraining from doing this as it may end up hurting you and your loan in the process. Your credit score and financial standings greatly influence the mortgage loan process. Lenders look for low-risk clients when offering home loans to decrease their chances of any loss. To obtain a mortgage, most banks or other financial institutions will look at various factors to determine whether or not you are a good candidate. These factors often include the following:

  1. Reviewing your assets
  2. Verifying income and employment
  3. A review of your credit report
  4. Your credit scores.
  5. Your DTI (Debt to income) ratio

When applying for a mortgage, your financial circumstances and credit must be good. Once you apply, this information needs to remain steady until the process and paperwork are complete (This could take several weeks or months.)

Applying for a Credit Card

Applying for a credit card can do numerous things to interfere with obtaining a new mortgage loan and the interest you can face.

  • The application– Just applying for a new card can affect your credit score. Each application runs a credit report check will show up on your credit report. While one card might not cause too much damage, multiple pulls can add up.
  • Age of accounts– Opening a new credit card will lower your age of accounts. Lenders like to see good standing on long-term loans and a history of on-time payments.
  • Existing debt- Opening a card and adding to your current debt load can be a deal breaker for some lenders. It isn’t a good idea to increase your debt when trying to secure a large mortgage loan.

Since mortgages pose a considerable threat to lenders, ensuring their customers are reliable and are likely to pay back the debt is crucial.

Already Applied for a New Card? No Worries

If you have already applied for a new credit card and are in the process of obtaining a mortgage loan, it’s not a total deal breaker. Along with credit accounts, banks look at multiple other factors when determining who qualifies for a loan. If your payments are always on time, your debt to ration income is reasonable, and your income is within the limits of the requirements, your new card won’t place too many points against you. With that said, you shouldn’t use that card once you receive it. Doing that will negatively impact your chances of landing that loan even more. If you need a new credit card, it would be wise to wait until closing is over and you signed for the loan; then, any impact on your credit score will no longer affect securing a loan.

Final Thoughts

A new credit card is a great way to furnish your new home or to stock the shelves and refrigerator once you have your keys in hand. However, applying for that card during the closing process could threaten your borrowing abilities. Wait until the entire loan process is complete before borrowing money from somewhere else.

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