Do I need a credit card before a mortgage?

When it comes time to buy that first house, there will be many questions popping into your head. Credit is the word you will be hearing the most, and you will be right to wonder if you have enough credit to be able to be approved for a mortgage.

Once approved for a mortgage you will then be hoping that your credit score and credit history will allow you to get a respectably low interest rate. With this in mind, you may be wondering if you should get a credit card before a mortgage.

Credit cards are indeed a good way to build credit. However, you must keep in mind the self-discipline it takes to own a credit card and use it responsibly. The question of whether or not you need a credit card before applying for a mortgage can be answered after you understand the financial position you currently find yourself.

What Is The Current State Of Your Credit?

The major reason for getting a credit card before applying for a mortgage is to help build credit. A credit card, if used responsibly, is one of the easiest ways to do just that. First off though, you should examine the current state of your personal credit.

You should fall into one of the following credit categories:

  • No Credit: Most likely you are young, possibly a college student or just graduated from college. A credit card is a very good way to help build credit as long as it is used responsibly.
  • Bad Credit: You have had some issues when it comes to paying bills or paying off loans in the past. You may even have a bankruptcy in your past. It will be difficult to get a mortgage, but you will be able to get some sort of credit card. A credit card may be your best means of which to build back your credit rating.
  • Fair Credit: A credit card can help to bump your credit score up a little, but it may not be necessary. Most likely, as long as you haven’t opened up several new accounts recently, a credit card will be beneficial to your credit score.
  • Good to Excellent Credit: If you have good to excellent credit, then you probably already have a credit card. At this point, you are in good shape for approval of a mortgage and should be looking at a low interest rate. A new credit card will probably only hurt your credit score.

How To Be Responsible With Your Credit Card

A credit card can only help your credit score and make getting a mortgage easier if you are responsible in your spending. Here are a few guidelines to help you keep your credit card balances under control so that you can get the full benefits of owning a credit card.

  • Use The Card Only When Necessary: Try to think of your credit card as something to be used only in emergencies. The less you use the card, the less likely you are to get yourself into credit card trouble.
  • Pay Off Your Balances: This will help to keep away the interest charges. Interest can quickly add up and make your balance difficult to pay off. If you spend responsibly, you should be able to pay off your credit card each month.
  • Don’t Make Large Purchases: Large purchases eat up your credit limit and can really hurt your budget when you have to pay off that balance. If you can’t afford the item, don’t think that you should get it just because you have the credit card. Also, lenders look at the percentage of the credit line you have used. A big purchase can hurt that percentage and hurt your credit score.

Ways To Bump Up Your Credit Rating

In addition to getting a credit card to help build or rebuild your credit, there are few other ways in which you can improve your credit rating. These are steps you can take in place of getting a credit card if you are in a position that you don’t feel a credit card would be helpful.

  • No Overdrafts: Bouncing checks or going into your overdraft on your checking account will reflect on your credit report. Conversely, not using your overdraft or bouncing checks will improve your credit score.
  • Pay Your Bills: All bills that you have, whether it’s the electric bill or the cell phone bill, need to be paid and paid on time. Doing this will slowly but surely push your credit score higher.
  • Avoid Too Much New Credit: If your credit is good or better, then you don’t need new accounts or credit lines to build your credit. You will be better served by just keeping up with your bills, paying down your existing debt and avoiding the bad things. Too many recently added credit lines may send up a red flag to your mortgage lender.

The decision to get a credit card before applying for a mortgage is dependent upon your specific circumstances. Having and using a credit card responsibly will not guarantee you approval and a good interest rate on a mortgage, nor will not having a credit card keep you from your perfect mortgage. A credit card simply provides you with an easy way to build credit, but it is not the only way, and it is not necessarily the best way for some.

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