Do credit cards help you get a mortgage ? Most financial folks say having credit cards (which you pay off) are good to help build your credit score and thus help you get a mortgage. This is true, but far too often this idea is used as a sales pitch for credit cards.
Does the Credit Limit on every credit card you have counts against you for your mortgage?
The person we dealt with at our bank did a credit check on us, when we applied for our mortgage and gave us a report that looked like this.
http://www.ccpixs.com/
- Credit Card 1 Balance $0Â Credit Limit $1000
- Store Credit Card 1 Balance $0Â Credit Limit $2000
- Credit Card 2 Balance $0Â Credit Limit $2500
- Store Credit Account 1Â Balance $500Â Credit Limit $5000Â (we were buying a couch on a zero % interest deal)
We were then informed we had been OK’d for a mortgage balance of $X , taking into consideration my income, and our down payment. We were then informed that the real balance they would allow us to borrow would be lower.
$X - ( $1000 + $2000 + $2500 + $5000 )
The explanation given was the calculation done needed to include the potential debt load I might add with those extra debt vehicles. This made sense to me, and we got our Mortgage.
There are reports that this potential debt load is no longer being considered by some vendors? How could any sane lender not take this into consideration?
Question for Readers
Did your lender ask about credit cards, also did the credit cards count against your mortgage loan level ? I have had differing answers from different folks.
My available credit could be calculated by 1-3% against me as monthly debt.
Example.
-$10,000 available credit=$100-$300 monthly debt.
That assumes the bank wants to then calculate all your potential expense, figure out your monthly payments and work on that basis, which may be how it works now (I do not know).
But given you already have credit (i.e. the credit cards) why would a bank give you more than they think you can handle (yes, that is rhetorical, I realize how asinine it reads)
One of the key parts of credit score is debt/credit limit ratio. You want to stay under 30% and people with the best credit have less than 10% ratio.
I can manipulate this algorithm by increasing my limit. On any given day, I have $0-$1000 owing out of $10000 limit. So I’m never over my 10% ratio. My credit score has improved 40 points in 6 months. I get updated quarterly by burrow well for free.
But than I learned that my credit union uses credit cards as debt. 1-3 % of credit limit which represents minimum due.
I never pay interest but banks go by national averages. I could go through a messy divorce (50% chance). My child could get hurt in a foreign country with no insurance. I could lose my job and car breaks down. I could go through a mid life crisis. Any of those things and I start to struggle to make mortgage payments.
The industry standard for this percentage has changed over the years, but today it’s usually between 1% and 3% of your total outstanding charges. For example, if your total credit card balance is $500 and your credit card issuer charges you a minimum payment of 2% of that balance, your minimum payment would be $10.Apr 1, 2014