Impact of Credit Card Balance on Credit Scores For Mortgage

This guide covers the impact of credit card balance on credit scores for mortgage approval. There is a great impact on credit card balance on credit scores. Credit cards are extremely powerful tools for establishing credit. The higher the credit card limit is, the better and greater the impact it has on the consumer’s credit profile.

There is a great impact of credit card balance on credit scores. The higher credit card balance consumers have on the card, the lower their credit scores will be.

One thing about credit card balances is that they will fluctuate from month to month. It is not a permanent effect that it has on credit scores. A consumer’s credit score can easily drop by more than 100 points if they max out all their credit cards to their credit limit. Paying the credit card balances down one month will instantly boost the consumer’s credit scores by the following credit reporting period by the credit bureaus. In this article, we will discuss and cover the negative factors and impact of credit card balance on credit scores when qualifying for a mortgage.

Impact Of Credit Card Balance On Credit Scores: Importance Of Revolving Accounts

Credit cards are one of the most powerful tools for establishing or re-establishing your credit. Revolving accounts are the easiest and fastest way of rebuilding and re-establishing your credit. A high credit card balance will plummet your credit scores. Consumers with periods of bad credit or those who just had to go through bankruptcy or foreclosure can re-establish their credit by getting a few secured credit cards.

It will be extremely difficult for a consumer who just went through periods of bad credit, bankruptcy, or foreclosure to get unsecured credit. Chances are that they have low credit scores and many derogatory credit items on their credit report. Thank God for secured credit cards. Secured credit cards are the fastest and easiest way to re-establish your credit after bankruptcy, foreclosure, or periods of bad credit. Three to five credit cards with at least a $500 credit limit are highly recommended to optimize your credit scores. Two installment loans, besides credit cards will further boost your credit scores. In this article, we will discuss the impact of credit card balance on credit scores for mortgage approval.

How Do Secured Credit Cards Work?

Secured credit cards are just like regular credit cards. However, the consumer needs to put a deposit down, and the secured credit card company will issue a credit limit equivalent to the amount of deposit the secured credit card customer has put down. For example, Capital One is one of the nation’s largest secured credit card companies.

If a consumer puts down a $500 deposit, the secured credit card company will grant credit equivalent to the $500 deposit the consumer has put down. The secured credit card company will charge interest just like a regular unsecured credit card company on the balance.

A monthly minimum payment will be due. The secured credit card company will report the consumer’s payment history on all three credit bureaus. If the consumer is 30 days late on their monthly minimum payment due, the secured credit card company will report them late to the credit reporting agencies. This is done just like unsecured credit card companies.

Benefits of Increasing Credit Limits

The higher the credit card limit, the better it is for consumer credit scores. Secured credit card companies will charge an annual membership fee. If the consumer has a good payment history for at least 12 months, most secured credit card companies will increase the consumer’s credit limit. Credit limit increase is done without asking the consumer for an additional deposit.

Secured credit cards are the easiest and fastest way of establishing and re-establishing credit. For consumers with no credit scores or no credit, getting secured credit cards will instantly give them a credit score.

Consumers with low credit scores due to no active credit trade lines can expect a 10 to 20-point jump on their credit scores for every secured credit card they get. Three secured credit cards are highly recommended for maximum credit score optimization.

Negative Impact of Credit Card Balance on Credit Scores

Consumers’ high credit card balances will harm their credit scores. If the consumer has credit card balances maxed out, it will plummet their credit scores. Consumers who want to maximize their credit scores must keep their credit card balance under 10% of the available credit card limit. Conversely, having a zero credit card balance will also harm credit scores. To optimize credit scores, consumers need at least a 10-dollar credit card balance and not a zero credit card balance.