If you’re in the process of closing on a house, you’ve probably heard of the dangers of applying for a new credit card. Our mortgage lenders have a great way of scarring us into being financially passive during the process. And for good reason! Of course we want the lowest interest rate, and smoothest closing.. Will applying for a new credit card really hinder the process?
Will getting a new credit card while closing on the house stop the mortgage from getting approved?
No, if you have good credit and don’t plan on racking up a bunch of debt on your new card it will be okay. If you can refrain from applying, it may be the better idea until the mortgage closes. Always ask your loan officer before making large financial decisions during the closing process.
Although it may not stop the mortgage from getting approved it may have some effects. In order to get the lowest interest rate possible will require having a lower debt to income ratio, longer credit history, limited hard inquiries, mainly because these will boost your score. Say you are a 780 plus and are considered A+ credit, a new card is most likely not going to affect you at all in the closing process.
When should you apply for a new card during the closing process?
I’m sure the salesman at your local furniture store was hasty in offering a no interest credit card, be careful this may spook the bank! Furniture purchases go hand and hand with closing on a house, and prematurely applying will imply to the bank you are going into more debt soon.
For me, the exception came applying for an AMEX Gold Card, the bank was totally cool with it. I am a 738 FICO credit score, and have become much more responsible with my credit. The first thing I wanted to do was get that shiny new Gold card with the massive points welcome offer. I checked with my loan officer and it was acceptable.
Again, check with your loan originator and let them know what the situation is, most of the time they will be completely okay with it.
Are you afraid of credit?
I see this all the time and have fallen victim to it as well. Theres so much pressure and talk around credit scores you would think it is the adults report card. Well, maybe its one class..
All this hype scares people away from credit, using it to make bad decisions and trapping themselves. Ultimately, credit is a way that we can boost our spending power and lift ourselves out of our current situation.
Use credit and don’t let creditors scare you. Respect credit and debt but don’t let it run your life, its a tool we can get great at using!
The keys here are:
- Figure out your intention for wanting to apply for a new card during the closing process.
- Is this for a large furniture debt? Large home improvements? If so wait for after the closing to keep DTI low.
- Ask your loan officer what is acceptable and what is not.
- if you have a good relationship with them they should be up front an honest, trying to help the best they can.
- Ultimately, don’t be afraid of credit and using it! Thats what it’s there for.