AgentMortgage

How credit cards affect home purchase

Excessive use, new accounts raise red flags

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"Should we pay off our credit cards before saving for a down payment? Or is there a point where it makes sense to make the minimum payments on our cards and bank the rest for a down payment?" Credit cards play a complicated role in preparation for a home purchase. On the positive side, a history of timely payments on credit cards builds a positive credit history and a correspondingly high credit score. That's an important plus when you enter the home loan market. On the other hand, if there are any indications of financial stress in your credit-card history, it will reduce your credit score, even though you may be making all payments on time. Indications of stress include new card issuances and high utilization ratios -- these are the ratios of balances to maximum balances. As you plan ahead for a home purchase, get your utilization ratios below 50 percent and avoid taking out new cards. Credit cards can also affect your ability to qualify for the loan you want because the required pay...