Credit Cards and Home Ownership
Don’t Add Any New Credit Cards to Your Wallet If You Plan to Purchase a Home
Using credit cards can be a helpful way to make ends meet. However, if you dream of purchasing your first home, you should refrain from applying for new credit cards and from charging up the ones you have. While credit cards don’t have to be a homebuyer’s enemy, they’re definitely not a homebuyer’s best friend.
Just A Few Points Can Mean Thousands of Dollars
When you apply for a mortgage, you definitely want your credit record looking as good as possible. Just a few points on a credit score can mean thousands of dollars over the life of your mortgage. If you have recently acquired new credit cards, this could reflect negatively on you when it is time to purchase a home and if your credit score drops, it’s going to cost you plenty.
Let’s say your credit rating is 621 but it drops to 617 because you maxed out one or two of your credit cards. That four-point difference can mean paying a higher interest rate -- as much as one or two percentage points higher. Considering that mortgages typically extend for about 30 years, even just half of a percentage point can translate into a substantial amount of money over that time frame.
Applying Isn’t Harmless
Many people think it doesn’t hurt to apply for a credit card as long as you don’t use it. This isn’t always true. Each time you apply for a credit card it shows up on your credit report as an inquiry, and multiple inquiries can affect your credit score.
Too Much of a Good Thing
Even if you don’t carry a balance on your credit card, lenders look unfavorably at customers having high available balances because it means that you have the potential to be in debt for that amount of money. Lenders give lower interest rates to consumers who present less of a risk, and having numerous credit accounts open, regardless of balance, can increase your risk.
If you anticipate purchasing a home within the next year or two, you should definitely curb any new credit inquiries. In order to reduce the number of credit inquiries on your credit report, you need to reduce the temptation to acquire new credit cards. Realize that almost every time you make a purchase at a department store or any store in the mall, a sales associate is probably going to ask you to open up a credit card. Simply decline such offers. Your goal of home ownership is too important to tarnish your credit rating in order to get a ten-percent discount or help a sales associate meet a quota.