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What you should know about paying off credit card debt before your mortgage closing date

by Roseann Dugan 08/18/2024

Many potential homeowners wonder about the benefits of paying off a credit card before their new mortgage closing date. While paying off debt before applying for a loan is generally a good idea, there are other ways your credit can affect your mortgage approval and terms.

Here is some basic information to know about credit card debt and a mortgage:

How new credit affects potential mortgage approval

Taking out new credit, whether it's opening a new card or retailer-specific line of credit, can negatively affect your credit score. While the damage might be temporary, timing is everything - increasing your credit limit and debt to income ratio before applying for a loan may show mortgage lenders you're too much of a risk.

Closing an existing credit card can also impact your credit score. Overall, most mortgage lenders prefer a stable, even credit history without any major, recent changes.

What credit score do I need to purchase a home?

The minimum credit score requirement for a mortgage depends a bit on the type of loan you get. For example, conventional loans not backed by government programs require a score of at least 620. While it's possible to get approval with a lower credit score, you may end up with a much higher interest rate and monthly mortgage payments.

Both FHA and VA loans offer more flexibility when it comes to credit report requirements. A government loan may only require a score of 580. However, these can come with higher interest rates as a consequence.

How long after buying a house can you use your credit?

If you want to open a new credit card, experts recommend waiting one full business day after closing at the very least. However, it's important to consider the lasting effect on your credit report. While your score can decrease quickly, it can take a long time to build back up again. Keep this in mind when making credit card account decisions after closing on a home purchase.

About the Author
Author

Roseann Dugan

 

Hi I am Roseann Dugan,  I have over 25 years experience working with both buyers and
sellers. I have been licensed in four different states and am very familiar
with the relocation process. I have worked extensively with relocating families
and I hold the designation as a Relocation Specialist. I have also worked
with Land development and New Construction. I am also a Senior Real Estate
Specialist (SRES) and an Accredited Buyer's Representative (ABR). 

I am a Full Time Agent who is dedicated to making the Home
Buying or Selling Experience a positive one