If you are planning on buying a home within the next 6 to 9 months, there are several things about credit cards that you should know about. Here are three important tips from Stacy Butler, an financial blogger for CreditCardForum.com:
1. Do not apply for any new credit cards
Every time you apply for a new card (or any line of credit for that matter) the lender is required to do a “hard pull” on your credit record. A “hard pull” simply means a creditor requested to see your record in order to determine your creditworthiness. Normally this is okay to do, but it also might temporarily knock down your FICO score by 5 to 15 points. So if you are buying a house within the next two to four quarters, it’s generally best to avoid opening any new cards.
2. Understand how your credit limits work
A lender will also look at the amount of credit you have available on your cards… do you have a credit card with a Visa Black card with a $20,000 limit or one with a Capital One card with a $2,000 limit? Being that mortgages are usually for hundreds of thousands of dollars, lenders like to see high lines of available credit on your file. What are some that are known to offer high credit limits? Well for your typical spender, the American Express Blue Cash card is known to give above-average credit limits. However the drawback is they are very picky with who they approve. If you’re a big spender, the Visa Black card is known to give limits up to $100,000 or more. However like we said, unless you already have these cards, it doesn’t make sense to apply for them if you plan on applying for your mortgage soon.
3. Pay down your balances
When a lender is qualifying you for a mortgage, they will look at all of your outstanding debts. If you have credit card balances, it might be a red flag for the lender. Therefore it is usually recommended that you pay down your credit card balances 3 to 6 months before you apply for your mortgage. That way when the lender checks your credit report, your credit cards will show a balance of zero. Please note however that a zero balance all the time is not good (because then that means you don’t use your credit cards). Rather, you just want the zero balance around the time you actually apply for your loan.
