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Buy a House: 4 Ways Your Credit Cards Can Help (and 4 Ways They Can Hurt)

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Buy a house, and you’ll understand how your credit cards and credit score effect your ability to get a home loan, or a good interest rate. But be smart, and learn now how credit cards effect if you can buy a house. You’ll avoid common mistakes, and may be able to improve your credit score before you apply for a mortgage. A better credit score usually means a better interest rate on your mortgage, saving you money.

4 Ways Your Credit Cards Can Help You Buy a House

If your FICO score is in the 500 – 650 range, a credit card can help you rebuild your credit. A secured card is similar to a payment card or gift card. Unlike a payment of gift card, a secured card can show responsible spending and use of credit. And that can increase your credit score. Capital One offers a secured MasterCard to help customers with poor credit.

Accept a credit card limit increase. Your balance-to-available-credit ratio is the percentage of your credit line that is available. If your credit card company offers you a credit line increase, accept it and immediately improve your balance-to-available-credit ration. Example: if you have a $2,000 credit limit, and a $1,000 balance, your available credit is 50%. If your credit card gives you a $1,000 increase, you now have a $3,000 limit with a $1,000 balance, or 66% of credit available. But don’t apply for a credit limit if it isn’t offered (see below).

Pay off balances. By paying off, or at least paying down, your credit cards, you increase the amount of available credit you have.

Don’t carry a balance. You’ll have 100% of your credit available, increasing you credit score. And you want your credit score to be as high as possible when you apply to buy a house.

4 Ways Your Credit Cards Can Hurt You Ability to Buy a House

If you’re applying for a mortgage, don’t apply for any other credit at the same time. This could negatively impact your credit score. Ultimately it can hurt your chances at getting a mortgage, or hurt your mortgage interest rate. Ideally you should stop applying for credit a year before you intend to apply for a home loan.

Don’t close old credit card accounts. If you have old credit card with a zero balance, don’t close it. Closing it will decrease your available credit percentage, because it decreases your total credit limit.

Don’t run up your credit card balances. The higher your balances, the less available credit you have.

Don’t miss a payment. Make your payments on time. Always pay at least the minimum due. Late or missed payments will really effect your credit score when you try to buy a house.

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