Tips for Managing Credit Usage When Buying a Home

The Dos and Don’ts of Using Credit Cards When Buying a Home

When it comes to buying a home, your credit usage can play a crucial role in the approval process for a mortgage. While it’s important to be mindful of your credit card usage during this time, it doesn’t mean you have to stop using them altogether.

Here are some key points to keep in mind:

1. Avoid activities that directly impact your credit scores or debt-to-income ratios, as these can affect your ability to be approved for a mortgage.

2. Credit card debt can impact various aspects of your credit scores, including payment history, utilization ratio, credit history length, and more.

3. Small changes in credit scores may not have a significant impact if you have excellent credit, but it’s crucial to be cautious if your scores are closer to the danger zone.

4. Your debt-to-income ratio is also important, as it helps lenders determine if you can afford your existing debts along with a new home loan.

5. Different lenders may have varying guidelines for calculating DTIs, so it’s best to consult with your lender for specific details.

6. DTIs can affect the type of loan, APR, and maximum loan amount you may be offered when buying a home.

7. It’s advisable to wait until after your home loan closes before applying for additional credit, such as new car loans or store cards.

8. Avoid making big purchases or applying for new cards as real estate closings can often be delayed, potentially impacting your loan approval.

9. Delay activities like requesting higher credit limits or closing card accounts until after your home loan closes.

10. The goal is to keep your credit situation stable and within your lender’s guidelines until your loan closes.

Remember, once your home loan closes, you can resume using your credit cards for purchases and even explore new cards with attractive benefits and rewards. By being mindful of your credit usage during the home buying process, you can ensure a smooth and successful closing on your new home.