Purchasing a new home can be considered one of the biggest decisions in one’s life and, in most cases, this is done through a mortgage application. But it involves many other additional expenses, like buying furnishings and decor, to make it as comfortable as possible.
Even though it can be very tempting to apply for a credit card to transform your new place into a real home, this may have a negative impact on your overall mortgage experience.
What’s the connection between the two?
Considering the fact that current mortgage rates are moving up rapidly, following the historic lows in January, potential homeowners are looking forward to obtaining the best rate possible, as well as affordable monthly payments. And these can be obtained, as long as they have a great credit history!
But things can change a bit if you open a new card…
“There are several factors lenders use when deciding interest rates and creditworthiness,” says Toby Mathis, founding partner at Anderson Law Group.
“Opening a card may not be enough to move the needle on any of them, especially if you had credit cards for a long time and have very limited usage. But it would be sad if a new credit card cost you even.25 percent on a loan. That little difference can equal thousands of dollars over the life of your loan,” he added.
What should you do before applying
If you know that your debt is so substantial that it can cause issues with your mortgage application, obviously, the number one recommendation is to try paying as much as possible, in order to stabilize your bank account.
Not only this will boost your credit score, but also help you secure a low mortgage interest rate!
Additionally, you can try addressing various loans, like student loans, business loans, or even an auto loan, as all these can be very helpful in improving your credit score.
To wrap it up, there’s no doubt that a new credit card can be very tempting when applying for a mortgage, but our recommendation is to reconsider your options, at least after closing. This can be an excellent strategy to save money and have a smooth mortgage application experience.