Buying a house is probably the biggest purchase you will ever make in your lifetime (unless you end up buying buildings in Manhattan). When you’re purchasing a house and applying for a mortgage it is also the most important time for you to make sure your credit score is at its best. The better your score is, the better interest rate you will get on the mortgage loan. A better score may result in saving you thousands of dollars in interest.
In this post, I want to address a question that I am asked very often: How long before applying for a loan should I not open or close any credit cards?.
Ten percent of the Fico credit score calculation is a category known as “new credit”. Every time you apply for a credit card or any loan, the bank will always make a credit inquiry. Every time a credit inquiry is done, your score will go down by a few points. Although many credit inquiries can damage your credit for as much as 12 months, if you have only 3-5 credit inquiries the effect will only last for 2 or 3 months, and after that your score will basically be back to where it was. Please note that a credit inquiry will affect your score regardless of whether you were approved or not.
Getting a new credit card right before you apply for a mortgage may also hurt your score in another way. That is the new tradeline showing on your credit report.
When applying for a new card, Fico looks at it as if you’re trying to borrow more money from the banks, even though it could be that you’re only doing it to gain some great credit card bonus. Fico will still think that maybe the reason you’re trying to apply for a new account is because you may have lost your job etc. , and you desperately need funds. That’s why they will lower your credit score for about six months. After the six month period, your score should no longer be affected by the new account.
So, to answer your question, how long should I wait before applying for a mortgage? Now that you understand what we talked about above, you probably shouldn’t apply for a new credit card in the six months before you apply for a mortgage. That’s because the new credit card may still be affecting your score negatively at that time.
Buying a house is likely one of the biggest financial decisions you’ll ever make. It requires careful planning and consideration of how your finances may impact your ability to get a mortgage. One key thing to think about is how applying for new credit cards in the months leading up to a home purchase could affect your credit and loan application. In this comprehensive guide, we’ll look at whether you should get new credit cards 6 months before buying a house.
The Potential Impact of New Credit Cards on Mortgage Applications
When applying for a mortgage lenders will scrutinize your credit history credit score, debt-to-income ratio, and finances. This helps them determine if you can manage mortgage payments. Any changes to your credit, like opening new cards, may affect your application.
Hard Credit Inquiries and Credit Score
A worry about getting new credit cards before getting a mortgage is how hard inquiries can hurt your credit score. When you apply for credit, the lender does a hard inquiry, which can lower your score by a few points for a short time.
While one inquiry may not drastically affect your score multiple in a short time can accumulate and take a bigger toll. Too many new account inquiries in the months before applying for a mortgage may be problematic.
Reduced Average Age of Credit
Another factor is how new cards can reduce your average age of credit history. Lenders prefer a longer history, as it shows you can manage credit responsibly over time.
When you get a new card, the average age of your accounts goes down. This can hurt your credit score. Credit score models don’t give as much weight to newer accounts.
Increased Credit Utilization Ratio
Getting new cards can also influence your credit utilization ratio – the amount of credit you’re using versus your total available credit. Lenders like to see this below 30%.
If you open new cards but don’t pay down balances, your utilization ratio may increase. This can hurt your credit score and mortgage chances.
Potential Benefits of New Credit Before a Home Purchase
While risks exist, some situations may warrant opening new credit cards before buying a home.
Improved Credit Utilization Ratio
If you have low utilization and pay balances off, new cards can actually help lower your ratio. This can boost your credit score, which helps mortgage approval odds.
Building Credit History and Mix
Opening new accounts can demonstrate you can manage different credit types responsibly over time. This credit mix and history length are pluses that mortgage lenders like to see.
Increased Credit Limits and Available Credit
Higher total credit limits and available credit make you appear less risky to lenders. More available credit that you aren’t tapping makes it seem you can handle taking on mortgage debt.
Timing Considerations for New Credit Before a Home Purchase
Carefully weigh when you apply for new credit around a home purchase.
The 6 Month Rule
Many people say to be careful about getting new credit in the six months before applying for a mortgage. During this important time, inquiries and a drop in the average age of your accounts may hurt your credit score.
However, your specific situation may warrant exceptions to this guideline. Evaluate your credit profile and goals.
The 12+ Month Approach
If you plan to buy soon, opening new cards 12+ months out may be better. It allows time for accounts to age and your credit usage to stabilize before applying for a mortgage.
This longer-term view can help you benefit from the positive effects of more available credit and mix. Just be sure to manage new cards responsibly.
Waiting Until After
You may opt to wait until after closing on the home to open new cards. This avoids any complications new accounts could cause during the mortgage application process.
While this approach misses potential benefits of new credit, it eliminates risks to your approval odds. You can always open new accounts after securing your home loan.
Key Factors to Consider When Deciding on Timing
Consider your unique situation when weighing the timing of new credit accounts before a home purchase:
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Current credit profile – Evaluate your score, history length, and utilization ratio. How could new accounts change this?
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Mortgage timeline – Know when you plan to apply and buy. Factor this into new credit timing.
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Financial situation – Assess income, savings, debts. Do potential rewards of new cards outweigh risks?
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Responsible credit management – If you tend to overspend or miss payments, waiting may be safer.
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Lender requirements – Discuss your situation with lenders to ensure you follow their specific guidelines.
Case Studies and Examples
Here are some examples of how new credit cards before a mortgage can play out:
Responsible Use Helps Credit Profile
Sarah has good credit. She opens two new cards 12 months before applying for a mortgage. Her credit score increases by 20 points, helping her get a lower interest rate and savings.
Aggressive Credit Hurts Mortgage Chances
John has limited credit history. He opens 3 new cards in the 3 months before applying for a mortgage. His score drops 40 points. He gets a less favorable mortgage rate due to the inquiries and high usage.
Waiting Helps Avoid Complications
Emily has good credit and plans to buy in 9 months. She waits to open new cards until after closing. This avoids any credit score impacts that could affect her application. She gets a favorable mortgage rate.
The Bottom Line
Opening new credit cards 6 months before buying a house may or may not be advisable depending on your situation. Carefully weigh the potential risks and rewards. Manage new accounts responsibly, and align timing appropriately with your homebuying goals to make the best decision. With proper planning, new credit can help rather than hurt your mortgage chances.
It’s not only credit cards
It’s not only a new credit card that should be held off about six months before a mortgage. Any loan, for example an auto loan or car lease, will also have an affect on your credit score. So if you’re under contract and you need to close shortly, always consult with your mortgage broker before you apply for a new credit card, take out a new lease, or apply for any new loan (this is besides the point that new debt can impact your income/debt ratio and cause you to unqualify for the loan). Frequently asked questionsI recently moved. Should I use my old address or new address when applying for a credit card?I recommend using the old address for the first approx. 30 days after the move as it can take up to 30 days for the new address to show on your credit report
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Highest ever!! Earn $2,000 after spending $30,000 within the first 3 months. Plus, earn an additional $2,000 for every $500,000 you spend during the first year. You can earn the bonus unlimited times over the course of the first year!
Earn 150,000 points after spending $20,000 within the first 3 months. Plus earn an additional $500 statement credit after spending $2,500 on qualifying flights booked directly with airlines or through American Express Travel within the first 3 months. Expires 6/30/25.
Earn $500 after spending $500 within the first 45 days.
The smarter way of keeping track of your cardsNow available on Android and iOS
Get our app on
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Buying A Home In 6 MONTHS? Here’s Your Gameplan
FAQ
How long after opening a new credit card can I get a mortgage?
Give yourself at least a month from opening a new card and applying for a mortgage. Chase reports new accounts on the first statement post. As long as the account is on your credit report before the initial mortgage application, your credit report won’t change during closing so you’ll be fine.
Should you get a new credit card when buying a house?
Exciting new things are on your horizon when you begin your home buying process. You may have begun to look at homes and talk to a mortgage loan officer about how much of a home you can afford. It may be tempting to embrace the excitement by also applying for a new credit card with better rewards or a big promo.
Should I get a new credit card before a mortgage application?
Making your monthly payments on time will raise your score eventually, but this can take a few billing cycles or longer. Overall, opening a new credit card account and managing it wisely is good—not bad—for your credit. But getting a new card just before or during the mortgage application process isn’t the best timing.
How long should I wait before applying for a mortgage?
I wouldn’t recommend applying for any credit card 6 months before applying for a mortgage. Ideally wait a year just to be safe. It’s not worth missing out on the house you want for a few SUB. Wait at least a month between getting a new credit card and applying for a mortgage. Chase reports new accounts on the first statement post.
Should I apply for new credit cards after closing my home loan?
Even if you have already received pre-approval, avoid applying for new credit cards until after closing your home loan. Not only does every credit inquiry “ding” your credit for a while, but any new lines of credit can hurt rather than help.
Should I open a new credit card account when getting a mortgage?
Opening a new credit card account when you’re trying to get a mortgage can complicate your loan application. A new account may cause your credit score to dip temporarily and may raise questions about the stability of your finances. You should put your thoughts on getting a new card and a new house on hold and keep reading.
How long before buying a house can I get a credit card?
The 12+ Month Approach: If you’re planning to buy a home in the near future, a better approach may be to open any new credit cards at least 12 months before your anticipated mortgage application.
Can I apply for a credit card before getting a mortgage?
Many mortgage loan officers still recommend that you avoid opening any new loans or credit cards. The lock period is only good for your prequalified loan amount and property type.
How long should you have a credit card before applying for a mortgage?
Don’t apply for credit 6 months before applying for a mortgage – If you apply for a loan, credit card, utility contract or even a mobile phone then a search …Feb 9, 2024
Can I get a credit card before closing on a house?
It depends on where you are with your scores and in the process. It could have little to no effect or a big one. Your best bet is to wait till after you get your keys. Credit card applications are immediate as you can do it same day and your mortgage will take around 30 days or more to hit your report.