Almost everyone nowadays owns a credit card. Though this might be the most convenient financial tool you will own, it might at times be the Achilles heel of some ventures. One of the ventures which will be significantly affected by a credit card mistake is your home loan application.
Although most mortgage applicants will take several steps to boost their chances of a successful loan application, few do much to guarantee they get optimal rates. They will only realize their folly when they get consistently high mortgage rates across different lenders in Oregon.
Your credit card should however not be the reason you either get stuck with a high home loan rate or give up on your homeownership dream altogether. The following are the mistakes you should avoid with your credit card to guarantee the best rates for your mortgage.
Late Credit Card Payments
The primary element that determines your mortgage’s rate is the credit score which assesses your creditworthiness. The payment history of your bills determines over 30% of your credit score.
If you are in the habit of paying your credit card bills late, this will significantly hurt your eventual score. With the technology nowadays, you can set up automated reminders for the payment of your bills so that you guarantee their timely payment.
Over Utilizing Your Credit
Another credit card issue which will affect your credit score is your credit card bill. This amount determines about 30% of your final score and is primarily based on your utilization of credit vis-a-vis your allowed credit limit.
In most cases, your credit score will drop if you use more than 30% of your allowed monthly credit limit. To avert this mistake which increases your mortgage’s interest rate, start paying your credit bills each time you use 30% of your allocated limit.
Applying for Multiple Credit Cards
Most people know that moving expenses will eat into their finance when buying a home. As such, they will simultaneously apply for multiple credit cards to cover their costs. 10% of your credit score is however triggered by the application of new credit cards and loans, and this could dip your score.
Even if you have an optimal rating which can remain good even with the 10% dip, your lender might interpret the application for multiple cards as a sign of financial trouble.
Never Applying for a Credit Card
This might look strange owing to the many dangers associated with owning a credit card. Your credit history’s length, however, determines 15% of your credit score.
Without a responsible credit card history, even accessing a mortgage can be a challenge. This is because there is nothing that shows a lender that you are a responsible borrower.
Qualifying for a mortgage with a reasonable interest rate is not easy. Your credit card can make a significant difference in your application.
If you have been making the above mistakes, rectify them before your application. It will take around 6–8 months for your efforts to pay off and boost your credit score. If you are thinking of homeownership in the future, start avoiding the above mistakes now.