How Credit Cards Impact a Home Purchase

How credit cards affect a home purchase

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When it comes time to buy a home, there is nothing worse than worrying about your credit score. From forgotten Netflix payments to that student loan delinquency post-graduation, a perfect credit score can sometimes run away from you. However, there are actually many more ways that having a credit card can positively impact the process of buying a home.

In fact, there are few better ways to establish a strong credit score and strengthen your purchasing power. It’s just essential to know the key ingredients for a strong credit score and how they will impact your home loan. Read on for some of the most important reasons credit cards impact a home purchase.

How credit cards impact a home purchase #1

History of timely and consistent payments

One of the biggest factors that will help you (or hurt you) when financing a home will be your credit history. While a credit history is made up of many different things, one of the most impactful is a record of consistent and timely payments.

If you have a history of missing lender payments, paying late, or if you have ever had a loan go into default, then it will be much more difficult to buy a home. If you have, however, made your best effort to be on time, all the time, for all credit card payments, then your reputation will be in very good standing upon application for a home loan.

How credit cards impact a home purchase #2

Credit card utilization below 50%

While many people don’t think about this one, it can be a huge factor in your credit score and ability to buy a home. If you make sure to keep your credit card use below 50% of your credit line, then that will be an added bonus when you buy a home.

People who have multiple, maxed-out credit cards will get a dent in their credit scores. So this small figure can go a long way to help you when you apply for a home loan.

How credit cards impact a home purchase #3

Total credit card debt payments are under 8% of gross income

When you tally up all your credit card debt by looking at the total amount you owe in monthly payments, it should come to less than 8% of your gross monthly income. Or, your yearly amount due should come to less than 8% of your annual salary.

This is not something that is often considered before using a credit card, but have a low debt percentage will put you in very good standing for buying a home. Lenders want to know that you can legitimately afford the monthly payments on any housing loan you will take out.

How credit cards impact a home purchase #4

Bargaining power and down payment flexibility

If you meet any (or all three) of these specifications when you apply for a home loan, it will benefit you in many ways. The biggest impact will be added bargaining power and flexibility in your down payment. The better your credit score, the more bargaining power you will have when it comes to the nature of your loan and its details, like interest and payment plans.

The higher your down payment, the better your bargaining power, as well, but you have to worry less about having a huge down payment if your credit score is flawless.

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