You must have learnt by heart that the best behavior pattern for you to build strong credit and preserve it is to pay your balances in full each month and close credit card as soon as it's paid off. Basically, this is the right train of thought but if we look deeper into the matter, we will disclose some crucial shortcomings in the system.
The most significant of them is how carrying zero balances on your credit card affects your ability to qualify for a home mortgage. No, it does not mean that you have to make a debt deliberately on all of your credit accounts. It just means that some very small and regular balance on your plastic is more likely to increase your FICO scores and so your worthiness for real estate lenders.
In the tough conditions of the mortgage and credit crisis, it is still possible to purchase home at reasonable terms. All you need to do is to prove the lender that you are solvent and capable to manage your finances. And is there a better way to demonstrate your wisdom in money management than through smart credit card use?
Attention all home seeking customers! The following tips on credit card use will help you hold the keys of your finances and build up the sort of credit mortgage lenders will want to consider.
Do carry a balance on your plastic, no matter how wild it may sound. If you are reasonable enough to keep your credit utilization ratio under 10% - the percentage of the balance due - you may have your scores boosted significantly.
Do remember that zero balances deprive banks from their revenues and so they do not count much when it comes to calculating your total credit scores. Credit rate tarts are not favored by companies, either, because they close their accounts as soon as promotion period is over.
Then, forget about closing your paid-off credit card accounts, unless you are up to your eyeballs in debt. Your long-term loyalty is appreciated by the bank and it is reflected in the wellbeing of your credit rating. Keep your oldest good credit accounts open, make regular purchases on them and pay on time a bit more than the minimum - and a mortgage lender will evaluate you as a good risk for a new home loan.
You may, at the same time, withdraw some of the newly-opened accounts and it will not hurt your scores as your credit history with these accounts has barely been established. There is a catch. Be wise not to close these cards until they are paid off, otherwise you will have to face hefty fees as a penalty for your action.
So, keep in mine your main course - carry some insignificant balance (which might be as little as $ 1 even) on your plastic and keep the account open as long as possible. The longer your credit history is, the more serious and reliable applicant you seem to a mortgage lender.
Apart from credit cards, there are some other factors that determine the success of your mortgage application. You are expected to have an auto loan and other types of loans paid off and referred to as "pays as agreed".
Your total debt ratio (the percentage of all monthly credit payments, including the mortgage) is desired to be less than 33% of your total income, so that you should have no difficulty making your monthly payments on the loan.
So, the right line of behavior and some good financial records you have already obtained break all the barriers on the way to your own home.