Mortgage soon, wipe out credit cards?
February 2, 2012 12:58 PM Subscribe
Applying for a mortgage soon (less than two months). Have close to $10k in credit card balance for reimbursable work expenses on cards. Always pay off at due date. Does it make sense to a) pay off balance to zero immediately? b) use other methods (debit card, corporate charge card) to pay for everything for next two months or c) both? Or is this too late to matter?
I use the credit card, rather than the corporate card to accrue points (I travel for work and run about $6,000 in expenses a month). Reimbursement for credit card charges is two weeks away.
My credit is pretty good (credit karma rates it mid 700s).
Credit limits are not close to being hit.
I use the credit card, rather than the corporate card to accrue points (I travel for work and run about $6,000 in expenses a month). Reimbursement for credit card charges is two weeks away.
My credit is pretty good (credit karma rates it mid 700s).
Credit limits are not close to being hit.
I think your past history with paying the balances off monthly should look great. I have a nearly impeccable credit score, and in the spirit of "must give SOME reason it's not perfect," the credit report I got said it was withholding those golden last few points from perfection because - I didn't have ANY recent balances?
However, because in the run-down to the mortgage application process they do take these snapshots of your financial picture and make these assumptions about a monthly debt/payment load based on them, I'd try to pay them off asap and use the corporate cards at least in the meantime (er, I'm assuming these corporate cards are the payment responsibility of a third party, i.e. you do NOT own the company nor have assumed direct responsibility).
As an editorial aside, IMO points aren't worth it to take those risks for the company you work for, but that's your decision.
posted by randomkeystrike at 1:04 PM on February 2, 2012 [1 favorite]
However, because in the run-down to the mortgage application process they do take these snapshots of your financial picture and make these assumptions about a monthly debt/payment load based on them, I'd try to pay them off asap and use the corporate cards at least in the meantime (er, I'm assuming these corporate cards are the payment responsibility of a third party, i.e. you do NOT own the company nor have assumed direct responsibility).
As an editorial aside, IMO points aren't worth it to take those risks for the company you work for, but that's your decision.
posted by randomkeystrike at 1:04 PM on February 2, 2012 [1 favorite]
A couple of things to think about:
You will probably have to account for any deposits into your checking account that are over $2k and don't appear on your pay stubs for a period of two months prior to applying for a mortgage. It's not a big deal that you're getting reimbursed, but it might be a hassle to have to account for every time it happens - it might be easier, for the next two months, to use the corporate credit card and forgoe the points to make your application process smoother.
If your credit score is fine, then there might not be a need to pay off a higher balance. But yes, your balance-to-credit limit ratio does affect your credit score and you might get into the higher-700s in two months if you pay it off now and keep it off.
posted by muddgirl at 1:20 PM on February 2, 2012 [1 favorite]
You will probably have to account for any deposits into your checking account that are over $2k and don't appear on your pay stubs for a period of two months prior to applying for a mortgage. It's not a big deal that you're getting reimbursed, but it might be a hassle to have to account for every time it happens - it might be easier, for the next two months, to use the corporate credit card and forgoe the points to make your application process smoother.
If your credit score is fine, then there might not be a need to pay off a higher balance. But yes, your balance-to-credit limit ratio does affect your credit score and you might get into the higher-700s in two months if you pay it off now and keep it off.
posted by muddgirl at 1:20 PM on February 2, 2012 [1 favorite]
Best answer: Your credit card debt will factor into the lender's calculation of your back-end debt ratio.
It is only too late to matter if after you pay off the debt, it still shows up on your credit history report as you apply for the mortgage. I wouldn't count on the credit bureaus being immediately timely on their updating of your current debts for their report on you.
You will need a credit score of approximately 740 and above to qualify for the best mortgage interest rates. As of earlier this week, 30 year fixed just fell yet again and was going between 3.75%-4.00% which is quite advantageous for buyers. Seeing that rates are at historic lows, I doubt a $10000 debt would have much impact on anything.
If you decide to not pay the debt, do your financial homework based on the cost of the house vs. how much you want to put as a down payment. Decide on what makes sense financially following that (adding more money to the down payment, saving it for house repairs or furnishings, investment, or paying off the remainder of the credit card debt).
posted by seppyk at 1:23 PM on February 2, 2012
It is only too late to matter if after you pay off the debt, it still shows up on your credit history report as you apply for the mortgage. I wouldn't count on the credit bureaus being immediately timely on their updating of your current debts for their report on you.
You will need a credit score of approximately 740 and above to qualify for the best mortgage interest rates. As of earlier this week, 30 year fixed just fell yet again and was going between 3.75%-4.00% which is quite advantageous for buyers. Seeing that rates are at historic lows, I doubt a $10000 debt would have much impact on anything.
If you decide to not pay the debt, do your financial homework based on the cost of the house vs. how much you want to put as a down payment. Decide on what makes sense financially following that (adding more money to the down payment, saving it for house repairs or furnishings, investment, or paying off the remainder of the credit card debt).
posted by seppyk at 1:23 PM on February 2, 2012
If you need to get a mortgage with a payment close to the maximum debt-to-income ratio, then it might be a good idea to pay off the cards now and not use them until after you've closed (they can and do run another credit check right before close to make sure nothing's changed).
(Alternatively, you can figure out when your cards report, and pay them off right before then so it looks like you've got zero balances but you can continue to use them. Some cards report around the time the statements close, others report at the end of the month. This is not worth doing unless you REALLY need to continue using the cards.)
If you're looking to get a mortgage that is comfortably within your means and overall your debt-to-income ratios are good, then I wouldn't even worry about paying these off, particularly if you're not close to your limits.
posted by rabbitrabbit at 1:25 PM on February 2, 2012 [1 favorite]
(Alternatively, you can figure out when your cards report, and pay them off right before then so it looks like you've got zero balances but you can continue to use them. Some cards report around the time the statements close, others report at the end of the month. This is not worth doing unless you REALLY need to continue using the cards.)
If you're looking to get a mortgage that is comfortably within your means and overall your debt-to-income ratios are good, then I wouldn't even worry about paying these off, particularly if you're not close to your limits.
posted by rabbitrabbit at 1:25 PM on February 2, 2012 [1 favorite]
Funny story. I was refinancing my home loan, and the credit report put my scores around 740. A month after I closed on it, I bought a new car. That credit report showed the old mortgage as paid off, and didn't show the new loan at all. My credit score had gone down to 650 somehow. I have no idea why this is.
posted by gjc at 4:29 PM on February 2, 2012
posted by gjc at 4:29 PM on February 2, 2012
Head to creditkarma.com to see your score and what your balances on each of your cards is reported as. Pull again on a weekly basis so you can see when your CC companies report. Update as often as you like, it's free.
posted by Brian Puccio at 12:43 PM on February 4, 2012 [1 favorite]
posted by Brian Puccio at 12:43 PM on February 4, 2012 [1 favorite]
This thread is closed to new comments.
You said "Reimbursement for credit card charges is two weeks away.", so get the credit card balance down, and the apply just to be safe.
posted by amazingstill at 1:03 PM on February 2, 2012