Credit card mistakes that can affect your mortgage approval

You have been saving money, making your payments on time and thinking about buying  a new home…you should be ready to go.  You meet with your loan officer and find out that there are some issues you didn't know about.  Credit card habits can affect your ability to qualify for a mortgage.

-Maxing out your credit cards.  This can affect you in a few ways.  One, it can affect how much you can qualify for due to the higher monthly payments required by the credit card company.  Two, it makes an underwriter wonder if you are able to manage your finances.  Three, it will lower your credit score.  To avoid this problem, try to keep your credit card balances under 30% of the available credit for each credit card.

-Past due accounts.  You are making your payments every month and all the sudden you realize that you forgot a credit card payment – it can happen by mistake, maybe you thought you paid it but you forgot.  Maybe you were on vacation and forgot about the payment.  If you have 2 or more late payments in the last 12 months, it can affect your credit score and some lenders may not approve mortgages with late payments on credit cards.

-Closing credit cards.  This sounds like a great idea – you have paid down your credit card and want to make sure you don't use it again. So you close the account, thinking you are doing yourself a favor.  This can easily affect your credit score because you just lost some of the available credit that you had.  One part of your credit score is your credit utilization.  The more available credit you have, the better.  So instead of closing the account, keep it open – maybe destroy the credit card if you think you will use it again.  If the account is one of your older credit cards, you definitely do not want to close it – that will also lower your score as it means you lose an account that has been reporting for a long time.

-Applying for more credit cards.  Inquiries will lower your score – especially credit card inquiries – it looks like you are shopping for more debt.  If you are getting a mortgage, you may apply at different companies and normally you are only buying one home.  However, you can open multiple credit cards at one time, so those inquiries will hurt you.  Also an underwriter may wonder if you are going to be able to afford that new home with more credit card debt.

-Being an authorized user. When you are an authorized user on a credit card, it means you are allowed to use that account.  The person that is responsible for the payment can affect your credit report by not paying that account on time.  That account will show on your credit report.  

Be careful with credit cards, you can affect your ability to get a mortgage without realizing it.  They are a great tool to have, but make sure you pay the accounts on time, keep the balances low and do not abuse the credit cards.  That way it won't affect your ability to get a new mortgage when you are ready to buy or refinance your current home.

Leslie Vanderwerf,  NMLS ID#335509, American Mortgage & Equity Consultants, NMLS#150953 - Email - Website

Written By

Currently a Senior Loan Officer at Cross Country Mortgage LLC, it's hard to believe I have been in the mortgage business for more than 25 years and have worked with Sharlene since 2000! I love sharing mortgage insights here each week and helping people finance their homes. Listening helps me find the right program for you!

Related Posts

What Every Homebuyer Should Know About Closing Costs

🖨 Print Article Before making the decision to buy a home, it’s important to plan for all the costs you’ll be responsible for. While you’re busy saving for the down payment, don’t...

Transite Heat: is this a problem?

🖨 Print Article If you mention the word transite to about 90% of the population, they either think of HVAC ductwork installed below the concrete floor in a basement, or they...

Subscribe to Our Newsletter for Market Updates & Mid-Century Modern Listings

Our weekly HomesMSP Update includes current local market information and a curated list of mid-century modern properties for sale, plus posts from an inspector, a lender, a stager, info about neighborhoods, life in the Twin Cities… even recipes!

Hidden

Blog Categories

Archives

Sharon and John Hensrud

About Us

The HomesMSP Team is committed to meeting you where you are and listening… really listening to understand you so we can use our extensive knowledge of the market and local neighborhoods to give you personalized service.