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Should you pay off your credit card before your mortgage closing date?

by Joellen Sardo Pompano Beach Real Estate 11/30/2022

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

Joellen Sardo Pompano Beach Real Estate

Real estate is a powerful thing. Where you live becomes the center of your universe: your “home base” and a place where memories are made. Joellen is your local beach life REALTOR®.

She has over 14 years of experience working onsite sales for home builders and is one of the most sought-after real estate agents for new homes/condos in Broward and the Palm Beaches. As a resident of South Florida, Joellen has deep connections throughout the Pompano Beach, Deerfield Beach, and Lighthouse Point Real Estate communities.

She recognizes and values the trust her client's place in her, and she strives every day to exceed their expectations.

Whether you're in the research phase at the beginning of your real estate search or you know exactly what you're looking for, you'll benefit from having a real estate professional by your side. I'd be honored to put my real estate experience to work for you.

"SoFlo Living"