|Posted on December 19, 2017 at 2:10 PM|
Ever heard of credit card churning? It’s when a person opens a credit card to take advantage of an offered bonus savings and then closes the account instead of using it long-term. The savings you get from that first purchase (or the free travel miles, or whatever offer) is tempting. Who wouldn’t want to save 20% or get 10,000 bonus travel miles? The only thing is, opening these lines of credit can lower your credit score. And if you are in the process of getting a mortgage, these new lines of credit can have some serious impact on your home-buying.
When my husband and I were purchasing our home, we contacted a cable television provider about getting service in our new house. It didn’t seem like a big deal until Team Neal contacted us after the credit inquiry showed up on our profile. We had to sign an affidavit promising that we had not taken on new debt. It didn’t affect our closing, but if something as simple as television service can affect the mortgage process, imagine the impact that buying a new car (or other major purchase) can have.
Whenever someone applies for a credit card, the issuer checks their credit before giving approval, something known as a “hard inquiry.” Every hard inquiry can lower your credit score by a few points. This can effect your mortgage because getting a home loan is a complex process. There are many factors that are taken into consideration when getting approved for a home loan: employment, income, and credit score, just to name a few. Your lender will also determine your income to debt ratio and you want your financial situation to look as good as it can so that you can get the best mortgage terms possible. You also want to keep your financial situation solid in the time that passes between getting approved for your mortgage and closing, which can sometimes last a month or more.
Here are some other things to keep in mind during the mortgage process: Making big credit changes can keep your loan from closing or delay it. Do not take out new loans or open new credit card accounts. Do not charge a large amount on your credit cards.
Mortgage lenders calculate how much you can afford to borrow with equations that rely heavily on your credit profile and score. If you open a credit card during your mortgage process, your credit score may go down, which can complicate or delay your mortgage. If you are in the process of getting a home loan or planning to get one in the near future, don’t enter into any financial contracts (like credit cards or loans) without first talking to your mortgage professional. If you have any questions or concerns, Team Neal will guide you through the mortgage process to ensure that you are taking the right steps to get the best loan options for your individual or family’s circumstances.