I've got an AmEx, an MBNA, and one store credit card. My limits are like 5000, 10,000 and maybe 1000 on each of the cards, and I have no balances. I have searched the net, but haven't found a good recommendation on how much credit is good to have. As I understand it, you don't want too much unused credit (at least when buying a house, which I may do within a year), so you can't get the mortgage, then charge up a ton of debt on your cards. The stuff I've found on the net says to have a certain low debt/credit ratio, but my debt is nil, so how much credit should I have? I'm wondering if I should start asking for credit line increases, or leave them as they are. Maybe it's not even as important as I'm making it out to be.

 

I'm no expert, but I think your debt-to-income ratio and a good credit history are more important than carrying a balance or having a specific total credit limit. Worry about it when you get denied.

 

The ratio that they look at is debt to available credit. I think they like to see something below 50% of available credit.

With the limits that you listed, I would stay below $8000 for a balance.

 

That's not even a factor. It's a given, you will charge more in the next while as you will be spending $$$ furnishing the house, putting up deposits, moving, etc. It's all taken care of in the ratios and the qualifying factors.

The credit bureaus look at your present balance and compare it to your credit line. Basically if your present balance is 50% or less of your credit limit you will have higher credit scores. What are your credit scores now?

Credit scores are what matter on a mortgage. This isn't 100% correct but for the most part if you want a normal everyday loan and interest rate then you need a 620 credit score.

A 680 score opens up more possibilities for you and 700 even more.

Below 620 and you generally have to take special loans that hit you someplace. It might be interest rate, it might be in fewer loan options, it might be terms, but it hits you someplace the guys with 620 scores don't get hit.

They do pay special attention to your rent/mortgage payments and your car payments because those are typically your biggest payments. This gives them a handle on how you will probably manage your new (probably bigger) mortgage payment.

They will also look at how good you've been at saving. You might get a 100% loan but they want you to have $$ in the bank even tho you aren't using it. The concept is that if you can't save money at your old rent/mortgage payment of $XX how in the heck will you make the new higher payment of $YY if you are living hand to mouth (no savings history).

There's more to it, but that will probably address what I think most of your concerns are.

Just a caveat within 90 days of buying a house don't let anyone pull your credit and when you are shopping for a loan get a copy of the first mortgage credit report pulled complete with credit scores (there is a difference between a report you pull yourself and a more in depth mortgage report. There is even a difference in the credit scoring structure) and use that copy to compare rates and terms.

Every time someone pulls your credit it affects your credit score. We count on a 10 point hit and usually aren't far wrong. If you shop for a car since every time you test drive a car the dealers are surreptitiously pulling your credit you could lose 50 or more points.

Why do they ding your score? Because new credit could have resulted and the credit bureau won't know about it for 90 days or more.

Your debt to income ratio is very important as well, but the credit score can be your admission price to certain loan types and since different loan types have different debt to income allowances there is no "certain" ratio that works for all things.

The more risky your loan type, property, area, the lower your downpayment, or anything that potentially affects you or your property's performance, the tighter the ratios.

If your ratios are high and your credit scores are low there are still loans available but not at the normal rates or terms. The basic premise is the higher the risk the higher the rate. The converse is also true, down to a certain point beyond which the rate will not fall regardless of how good you are.

 

Thank you for all the info.
My score is good, and my car payments have all been on time, etc. I was really just curious about the credit limit part of the equation, just to minimize any rate I might be looking at in a few months. Oh, I also hadn't thought about not shopping for other credit the months before. I don't see myself doing that, already having the cars we need, but I'll be sure not to.

 

Keep in mind the shopping for credit part applies to shopping for the mortgage as well. Multiple inquiries are multiple inquiries regardless of the source.

Once again, this is the Reader's Digest version so I have generalized some of the info.

As to shopping for a mortgage company you need to unno matter what you want, rates simply cannot vary by any significant amount for the same product.

For all intents and purposes FNMA (fannie mae) and FHLMC (freddie mac) set the rates and the terms.

They are the biggest purchaser of loans and so everyone wants their loans to "conform" (now you know where the term conforming loans comes from) to their standards so that should the need arise to sell your loan later, they can.

What this means is that the biggest difference isn't going to be rate or the terms (unless you have to get an A- or B loan), it will be how open and honest and helpful will your mortgage broker be.

Yes, I said mortgage broker. Well over 80% of all loans are made by a mortgage brokers. Direct lenders are very few and far between nowadays and tend to specialize in the more problematic loans or the rural loans.

So since everyone is dipping from the same money well, in theory, if everyone knew the same thing about you and you were shopping for rates on the same day then everyone would have the same rate for the same type of loan. In practice everyone won't know the same things about you and you could never call everyone at the same time so expect some minor fluctuations but if you see a large fluctuation - somethings's wrong and run as far and as fast as you can from that person.

Because Fannie & Freddie say on any given day that I am pay $X for a given type of loan/situation you won't find a big fluctuation in rates. Any loan destined for an alternative source wouldn't have this stability factor. But in any case most loans are made to Fannie & Freddie standards because they are standards that have stood the test of time and have been fair for both the lenders and the borrowers.

Although there are no guarantees, the mortgage person who asks the most questions about your situation is probably the person who will be able to give you the most accurate quote and the least likely to surprise you with a different rate or loan type at the last second.

Closing costs vary very little as well. Keep in mind that mortgages are federal loans and we all have federal standards to follow so closing costs ought to only vary by a $100 or so. The person that quotes you the highest closing costs is probably the most honest person you will talk to.

Title companies (some states use attorneys) tell me the average buyer is surprised with at least $2,000 in extra costs when they get to the closing tables. We all know what the closing costs are so how is this possible? It's easy, it is legal to lie to you. As long as a lender/realtor/whatever discloses at least about $1,000 in costs they are legal, just not complete.

So here's the problem. Lender rates can't vary significantly, the terms on standard type loans are the same nationwide, the closing costs are the same so how does a lender stand out in the sea of other lenders? Simple by preying upon your ignorance (not stupidity) by trying to make their costs sound lower. THEY ARE NOT! I do see an occassional company adding a few hundred to the closing costs but that's not the norm.

You will find the less than honest people saying things like "my" closing costs are $X when in fact there are 3 sources for closing costs. They leave out the title/attorney fees or the investor/underwriting fees. What you want to ask is "what will my total costs be?"

Oh, and then take a couple of the Good Faith closing cost estimates down to your local closer (title company or attorney) and have them tell you which one is the most accurate.

While not every lender has every loan type and while there are minor variations in the rates, if they have been honest with you and are disclosing all costs you probably will be better off going with that person.

Let's presume for a moment that a less than honest person is shading his closing costs and rate quote so that they appear less expensive than the honest lender so IF in fact they were 1/8% higher than what another lender appears, you still would be better off with the honest person. Because when you get to closing you won't get cheaper closing costs and you won't get a lower rate. As a matter of fact the less than honest person will probably try to make a little extra off of you and you'll end up paying more. Don't reward dishonesty.

It is more costly in the long run to get the wrong mortgage than to pay too much for the house you buy.

 

Slightly off topic. How are student loans factored into the overall scheme of debit/income/credit etc?

This is one of the better overviews of the system I have ever read, thanks

 

They establish credit just as well. The degree to which they do I guess would depend on how much you borrowed and if you paid them off on time.

 

A loan is a loan is a loan.

Now if a loan is due to be paid off soon then it might not have to be counted.

And thanx for the kind words.

 

I have been told that if multiple pulls are made on your credit within 10 days, all from the same type of source (car dealership, etc, etc) they are only counted as a SINGLE pull (since, for instance, you may be shopping for a car or whatever).

Can you confirm or deny this (from experience)?