Getting mortgage in 6 mths. Should I get a new credit card?

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Topic Author
tomtoms
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Joined: Wed Mar 06, 2013 10:56 pm

Getting mortgage in 6 mths. Should I get a new credit card?

Post by tomtoms »

I am planning to obtain a $500,000 mortgage in the next 6 months and to put 20% down. I recently checked my credit score from Equifax and it is 731. Apparently, I need a > 760 score to get the best rate. I have been using just one credit card for the last 13 years. My monthly credit card bill is usually < $100 so my credit limit is just $4000. According to Equifax, the key factors that are affecting my score:

(1) The credit line on revolving accounts
(2) There is insufficient information, or no account history, for mortgage accounts
(3) The percentage of department store accounts or charge cards to all of the accounts in your credit file
(4) The credit line on credit card acconts

My credit score has been the same for the last year. Within the last year, several of my student loan accounts and auto loan account have been closed since they have been paid in full. I still have four student loan accounts opened with less than $25,000 combined. The interest rate is < 1% so I am not planning to pay them off right now.

Would obtaining a new credit card help to increase my score? By doing so, I am concerned it would decrease my credit score in the short term. I have also asked my credit card company to increase my credit limit but they would first need to do a credit check and that may also affect my credit score in the short term.

What do you think I should do? Please advise!
Last edited by tomtoms on Sat Mar 09, 2013 4:50 pm, edited 3 times in total.
trudy
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Re: Getting mortgage in 6 mths. Should I get a new credit ca

Post by trudy »

Since no one else has answered, I looked on the Equifax site.

This page gives some hints:

https://help.equifax.com/app/answers/de ... ntercept/1

Among other things it says:
# Ratio of balances to credit limits on revolving accounts is too high
# Length of time accounts has been established is too short
# Too many accounts with balances

I would take that to mean that you ought to have your current credit card company increase your limit as opposed to getting an additional card. Either one would check your credit, I assume, but the new card would have the short time factor.

For what it's worth, I shuffled my cards a couple of times in the past few years before I settled on the two I wanted. I did see a short term drop in my credit score (my credit union emails the Equifax score free once a month to its members), but I don't recall it lasting for more than a month or two.
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Archie Sinclair
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Re: Getting mortgage in 6 mths. Should I get a new credit ca

Post by Archie Sinclair »

I suspect that it would decrease your credit score in the short term. One thing that you might do that might help slightly is spend only $40 a month on your credit card, which would reduce your credit utilization rate to 1%.
winglessangel31
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Re: Getting mortgage in 6 mths. Should I get a new credit ca

Post by winglessangel31 »

tomtoms wrote:I am planning to obtain a $500,000 mortgage in the next 6 months and to put down 20%. I recently checked my credit score from equifax and it is 731. Apparently, I need a > 760 score to get the best rate. I have only used one credit card throughout my life. My credit card bill is usually < $100 a month. My credit limit is just $4000 and that is one of the reasons why my score is not higher. Would obtaining a new credit card help to increase my score? By doing so, I am concerned that it would decrease my credit score in the short term. I have also asked my credit card company to increase my credit limit but they would need to do a credit check first and that may also affect my credit score in the short term.

What do you think I should do? Please advise!
Getting a new card right now will probably not increase your credit score by 30 within 6 months. Your $4000 limit should not be a factor why you think your score is low; it probably is because of a lack of accounts (having only one card). Nothing you can do right now will have such a great difference in 6 months though, I think. As I understand it, you might need a few more cards before seeing a positive effect.
rfburns
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Re: Getting mortgage in 6 mths. Should I get a new credit ca

Post by rfburns »

Ask your credit card to increase your credit limit by a factor of 5 - 10, else you will leave for a better card.
Applying for $500k mortgage loan with only $4k of established credit could prove difficult without extra documentation.
Topic Author
tomtoms
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Re: Getting mortgage in 6 mths. Should I get a new credit ca

Post by tomtoms »

Thank you for everyone for your advise so far! I have added additional information to the post. Your suggestion is greatly appreciated!
squirm
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Re: Getting mortgage in 6 mths. Should I get a new credit ca

Post by squirm »

I had the same question as I play the credit card sign up bonus, but didn't want to risk getting my credit score dinged so I'm staying away from new credit cards until my loan goes through.
ossipago
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Re: Getting mortgage in 6 mths. Should I get a new credit ca

Post by ossipago »

When asking your CC issuer for a credit limit increase, try and get one without a hard inquiry. Oftentimes they'll automatically make an inquiry for such a request, and that will ding your score a small amount.
bmelikia
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Re: Getting mortgage in 6 mths. Should I get a new credit ca

Post by bmelikia »

tomtoms wrote:I am planning to obtain a $500,000 mortgage in the next 6 months and to put 20% down. I recently checked my credit score from Equifax and it is 731. Apparently, I need a > 760 score to get the best rate. I have been using just one credit card for the last 13 years. My monthly credit card bill is usually < $100 so my credit limit is just $4000. According to Equifax, the key factors that are affecting my score:

(1) The credit line on revolving accounts
(2) There is insufficient information, or no account history, for mortgage accounts
(3) The percentage of department store accounts or charge cards to all of the accounts in your credit file
(4) The credit line on credit card acconts

Would obtaining a new credit card help to increase my score? By doing so, I am concerned it would decrease my credit score in the short term. I have also asked my credit card company to increase my credit limit but they would first need to do a credit check and that may also affect my credit score in the short term.

What do you think I should do? Please advise!
I only have 1 credit card that I've had since about 2008. . .I've used it from time to time (maybe 4 times a year) to make a $10 or $20 purchase - simply to build my credit. I just had my credit pulled to prequalify for a mortgage and my middle score was 801. As far as I can tell, opening a new credit card may not be what you're needing. . .but I'm not 100% sure on that. Just wanted to show that a person doesn't necessarily need multiple cards to have a high score.
"I would rather die with money, than live without it...." - Bogleheads member Ron | | A time to EVALUATE your jitters https://www.bogleheads.org/forum/viewtopic.php?p=1139732#p1139732
ossipago
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Re: Getting mortgage in 6 mths. Should I get a new credit ca

Post by ossipago »

bmelikia wrote: I only have 1 credit card that I've had since about 2008. . .I've used it from time to time (maybe 4 times a year) to make a $10 or $20 purchase - simply to build my credit. I just had my credit pulled to prequalify for a mortgage and my middle score was 801. As far as I can tell, opening a new credit card may not be what you're needing. . .but I'm not 100% sure on that. Just wanted to show that a person doesn't necessarily need multiple cards to have a high score.
It helps, though. A good strategy to follow to build a credit history is to open a decent number of cards over a few years, then never close the ones with no annual fees. Even if you never use them. Sometimes issuers will auto close unused accounts, but I've only had it happen once (that card was cancelled after 1.5 years, but I've had two I haven't used for 5+ years chugging happily along). Having a large available credit limit and a high average account age helps FICO scores.
Topic Author
tomtoms
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Re: Getting mortgage in 6 mths. Should I get a new credit ca

Post by tomtoms »

My score from credit karma is 35 points higher than my equifax score. Hopefully, they won't use my equifax score?
icefr
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Re: Getting mortgage in 6 mths. Should I get a new credit ca

Post by icefr »

When I got my mortgage, the lender told me that mortgage scores are different than the scores you pay for with Equifax/TransUnion/Experian. My credit score was definitely lower when applying for the mortgage than I thought it was going to be and it unfortunately was not 760. With my assets and cashflow, buying still made sense at that point in time even if I got a mortgage rate 0.125% or 0.25% higher than I could have with a higher credit score.
Topic Author
tomtoms
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Re: Getting mortgage in 6 mths. Should I get a new credit ca

Post by tomtoms »

OP here. I just received approval for a new credit card. I am planning to check my credit score 3 months from now and see if it has gone up. I will update everyone!
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PoeticalDeportment
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Re: Getting mortgage in 6 mths. Should I get a new credit ca

Post by PoeticalDeportment »

3 months before applying for the mortgage start only using your debit card (no credit card usage until mortgage is obtained) to make sure your credit utilization ratio (used/available) is as low as possible.
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retiredjg
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Re: Getting mortgage in 6 mths. Should I get a new credit ca

Post by retiredjg »

tomtoms wrote: I have also asked my credit card company to increase my credit limit but they would first need to do a credit check and that may also affect my credit score in the short term.
A "hard pull" can influence your score if there are several in a year. But it is my understanding this would be what is called a "soft pull" and would not affect anything. People with whom you have an ongoing financial arrangement can check your score any time they want. And many do once a year or so, but it is not considered a hard pull.

If you have not had other hard pulls this year, I'd go ahead and get another card and try to get a high limit. I doubt this will get you into the the next tier in just a few months, but I feel fairly sure it will not hurt you any (since it seems unlikely for that one thing to drop you into a lower tier).
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