I have been asked this question many times over the years when helping a customer get a mortgage. While one might think it is an easy question to answer, there is a bit more to it than a simple “Yes” or “No”.
Here is what you need to consider when applying for a mortgage in today’s financial world: Excellent Credit!!! Banks are still shying away from those with less than perfect credit when it comes to lending out on homes. Especially, since they are loosing money on the loans they wrote several years ago. They only want the best of the best to ensure that these loans do not go south, too.
So, how does one get excellent credit? They have to have a credit history. The easiest way to establish a credit history is, you guessed it… Credit Cards.
You might be thinking then that credit card debt is good to have then, not quite. You see lenders look at your total debt to income ration. They want to know how much of your income goes to paying debt. Also, credit bureaus look at the ratio of available credit to credit limit. Too high of a balance compared to the limit, hurts your score. Having too much available credit compared to your overall credit limits can also damage a score.
It is a fine balance that one must maintain when it comes to credit cards, balances, and rations. Here is a general rule of thumb that you can use to get the best results to have a healthy credit score:
- Keep balances less than 50% of the actual credit limit.
- Have one of each of the major credit cards: Visa, MasterCard, Discover and AmericanExpress.
- If at all possible, pay the account off every month.
- Do not close these 4 accounts unless you absolutely have to. Keep them open for years and years, even if you do not use them.
By using a credit card properly, you can see your credit score jump drastically in a matter of a few months to help you get into that home you want.
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