If you’re looking for a new house and plan to apply for a mortgage, the lender will closely scrutinize every aspect of your finances. If a lender approves your application, it will check your credit again shortly before closing to see if there have been any changes that are cause for concern. Applying for a new credit card while looking for a house could jeopardize your chance of getting approved for a mortgage at a competitive interest rate, or of getting approved at all.
How a Credit Card Application Could Affect Your Mortgage
If you applied for a credit card, the issuer would check your credit report. That is known as a hard inquiry, and it could negatively affect your credit score. The drop might be relatively small and temporary, but it could make a difference when applying for a mortgage.
A FICO score is based in part on the average age of your accounts. A new credit card would lower the average age of your accounts and could have a particularly large impact if you had few other accounts.
Even a small drop in your credit score could have a significant effect. If your lender has strict guidelines, a decrease of just a few points could cause you to get a higher interest rate than you otherwise would have, which means you could pay thousands of dollars extra over the life of the loan. Your mortgage application might also get rejected altogether.
A new credit card application could create uncertainty in the eyes of the lender, even if you had a good credit score. The company might worry that you would accumulate a lot of debt and struggle to pay your mortgage.
When to Apply for a New Credit Card
A hard inquiry could stay on your credit report for a year, and your credit score would gradually rebound after taking an initial hit from the inquiry. If you want to apply for a new credit card, do it at least three to six months before you submit a mortgage application. That will give your credit score a chance to recover from the effects of a hard inquiry and allow you to show the lender that you didn’t go overboard on spending and that you paid your bills on time. If possible, wait to apply for a credit card after you close on a house to avoid any negative effects on your credit score.
Don’t Jeopardize Your Chance to Purchase a Home
If you need to buy furniture, appliances, and other things for your new house, you may think it makes sense to apply for a credit card, especially one with a low interest rate and/or rewards. The fact is that doing so could hurt your chance of getting a mortgage at a low interest rate, or even of getting a mortgage at all. Keep your finances in the best shape you can and don’t give the lender any reason to be concerned about your ability to repay a loan.
