Does Applying for a Credit Card Reduce Your Credit Score or Ability to Get a Home Loan?

takutox on 30/12/2017 - 14:56
Last edited 30/12/2017 - 15:15 by 1 other user

Hi there,

I am in the situation where I have never applied for a credit card before. I am looking to get a home loan within the next few years.

Question is, will applying for a credit card have a negative effect on my ability to get a home loan approved later? (even if I pay on time etc.)

I've read some places that it is better to not apply at all if you don't need it, then I've read its better to apply and use it as 'proof' you can meet repayments on time.

Conflicting information is everywhere on the internet.

Does anyone know for sure whether it is better to never apply for a CC if you want a good rate/loan, and its effect on your credit score/file?

Financial

Comments

  • CyberMurning on 30/12/2017 - 14:58
    -5

    Of course…. Big negative.
    If for example now you can borrow 200k from a bank, after you get a cc with credit limit 10k your borrowing power is NOT 190K! It's way less than that, probably 160k.

    Its exponentially reduced.

  • dcep on 30/12/2017 - 15:07
    +2

    No, of course not

    you can cancel your credit card anytime before applying homeloan and still get your MAX borrowing capacity

    in short, you can still get homeloan easily even if you don't have credit history/file (no CC / no postpaid / no bills)

    you can still get homeloan with MAX borrowing capacity (even if you had 10 credit cards in the past which all have been cancelled ; as long as no late payment history, etc.)

  • EightImmortals on 30/12/2017 - 15:07
    +3

    Last time we went for a mortgage the banks, the banksters added our CC limit to our liabilities. So even if your CC balance was at zero they would still count the limit.

  • Davo1111 on 30/12/2017 - 15:14

    I'm not sure about having a negative effect. But it is essentially an unsecured loan.

  • jelko on 30/12/2017 - 16:04

    Everybody has a credit card. People with home loans, car loans and personal loans. In fact having a credit card might actually help you get a home loan as the bank will have some evidence that you are able to handle your money.

    Don't go overboard and get a $20,000 limit on your credit card. A couple of thousand will be enough to make the card useful and not get yourself into financial trouble.

    I guess the question you need to ask yourself is: why do I want a credit card?

    Is it because you want to earn frequent flyer points etc.? - Probably not the best reason to get a credit card. But some cards provide complimentary insurance and price protection guarantees so it might be worth getting one.
    It is because you are finding it hard to meet your monthly bills? - I don't think this is your case because you're planning to buy a home soon but if it is - Don't get one
    Is it because you want to buy products online? - Good reason to get a credit card. Though you can get a VISA Debit card which acts like a credit card but it uses money from your own bank account.

    • takutox on 30/12/2017 - 18:46

      Hi, the purpose would only be for the benefits - i.e. to get the initial frequent flyer points bonus, for the domestic/international travel insurance, the small bonuses from points from spend and the AMEX offers

  • blonky on 30/12/2017 - 16:07
    +1

    Should be the opposite - no credit card = no history of good credit standing.
    By default you will be in the Orange risk range; not bad but also not the best it could be, and shouldn't really affect your ability to get a home loan.
    Getting some type of loan or credit facility and paying it on time will decrease your credit risk from the bank's point of view

  • paul11 on 30/12/2017 - 16:22
    +1

    1-2 credit cards doesn't hurt. In fact, that's one of the easiest ways to build up your credit history.

    That being said, when you are ready to apply for a home loan, ask the lender if cancelling all your credit cards helps.

    In my case, I was advised by multiple lenders that having less or no credit cards will strengthen my application.

    YMMV ….

  • Elwes on 30/12/2017 - 16:49
    +3

    Applying hurts your score at first but once you've been paying it off on time every month for a while your score will come back up and eventually it'll be higher than before. Just don't apply for too many in a short period of time or just before you're going to apply for a loan. Check what the minimum income is for particular cards and don't apply for something you're likely to be rejected for.

    As Australia gradually shifts to the positive credit reporting system (American style), it's going to become increasingly important to have a credit history and paying off a credit card every month is the easiest way to do that. Under this system your score goes up if you have a low utilisation ratio i.e. you have a high credit limit but only use a small percentage of it (<30%).
    But at the moment not all banks look all that closely at the scores and many still hold it against you if the credit limit of your cards is too high (even if you're not using it, they see it as potential debt). So a month before you apply for a loan, reduce the limit on your cards and cancel any you're not using.

  • bobbified on 30/12/2017 - 19:01
    +1

    When you have a credit card, they assume that your credit card is maxed out and the minimum monthly payment is counted as part of your monthly expenses.

    Because of that, the amount of your income they think you can put towards the home loan repayments becomes less and hence the amount you can borrow becomes less.

  • Emerald Owl on 07/01/2018 - 13:52

    So I applied for a credit card and got rejected because my income was too low, will that stay on my credit file forever or will it go away in a certain time frame?

    • MadgeH on 07/01/2018 - 20:03
      +1

      Your credit file won't say 'declined' as such. It'll mention the credit application though so the decline won't have any more of an impact on your file than an approval.

  • langford28 on 15/01/2018 - 10:55
    -1

    i found this site explaining it…but its .com so not sure if it only accurate for USA.

    https://www.creditcards.com/credit-card-news/herigstad-switc…

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