+1 vote
At the moment, my 3-bureau FICO scores are fair.  My family and I will do a good portion of traveling this year, and could benefit from a travel card.
asked Jan 8 in Buying a Home by anonymous

2 Answers

+1 vote
"Fair" means a lot of different things to different people. Keep in mind that if your score drops from one tier into another -- for example, from 680 to 679 -- it can cost you thousands of dollars when you apply for a mortgage. One of the factors that influences your FICO score is the age of your accounts, and the addition of new accounts. Opening up a new card causes a temporary drop.

In addition, credit card utilization in a huge influence on your score -- exceeded only by your payment history. So adding to your balances can also drop your FICO. That said, if you open a new account five months before applying for your home loan, AND pay the balance off every month, AND refrain from adding to balances on other credit cards, you could actually increase your FICO.

That's because you would have more available credit, and if you don't add to your balances, your utilization ratio would actually decrease. For instance, if you have $5,000 in available credit and carry a $4,000 balance, your utilization is 80 percent, a not-good figure. ($4,000 / $5,000 = .8).

But if you add another $5,000 credit line, AND PAY IT IN FULL EACH MONTH (and probably don't use it at all the month before you apply for your mortgage, to make sure there is not balance on it), your utilization drops to 40 percent, a much better number. ($4,000 / $10,000 = .4)

So the answer to your question depends on how good your credit score is now, and how disciplined you can be with the new card. If you travel a lot and spend your money and run up your balances, you may not be in a good position to purchase a home in five months. Before buying, you want your debts as low as you can get them, your savings as high as you can get it, and your FICO score over 740 to get the best rates available.

Thanks for writing and please feel free to get back to us if you have more questions or want me to clarify anything. Good luck with your purchase and your travel plans.
answered Jan 8 by GinaPogol (39,300 points)
edited Jan 8 by GinaPogol
0 votes
ABSOLUTELY.  Credit Cards are revolving accounts and are great in boosting credit scores and developing credit profiles. Make sure you have utilization down to 10% about 45 days prior to applying for mortgage. Maxed out credit cards will plumnet credit scores.

Gustan Cho NMLS 873293
The Gustan Cho Team at USA MORTGAGE
www.gustancho.com
answered Feb 6 by GustanCho (107,040 points)
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