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As a first time home buyer, I am hearing many things about the financial steps to take before applying for a mortgage. I have been told that its better to not use credit cards at all for about two months prior.

Question is, is it true? Does it have any implications on the mortgage, or rate?

I have a Capital-One credit account, and they provide a service called Credit-Wise that shows FICO score and other relevant information. I can see all my credit-cards, with opening dates, and "Date of Last Payment". Some of these dates are a month old, other cards it is a year or more old (as I have not used these cards at all in sometime now). What is a better strategy

  • Make small purchases on all my credit card account and pay them off after the cycle ends - in order to make the "Date of Last Payment" as recent as possible?
  • Leave the accounts as they are, because the older the "Date of Last Payment" the better?
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    CapitalOne Credit-Wise does show a credit score, but it is not a FICO score. It is a VantageScore, which is a competing credit score company with a similar but not identical formula to FICO. What does it say your credit score is? – Ben Miller Jan 17 '17 at 19:05
  • My Score either way is not really relevant to the question... Sorry – KingsInnerSoul Jan 17 '17 at 19:30
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    I think it's relevant, because if it is sufficiently high enough, it won't make a difference what you do with your credit card. If you are on the edge, it might make a difference. That having been said, there is no way for anyone here to know exactly what the edges are, and no one here can tell you exactly how much your score will go up or down with certain actions, especially if you won't tell us where you are at right now. I suspect that the impact to your mortgage rates will be minimal in any case. – Ben Miller Jan 17 '17 at 19:37
  • I have used Credit-Wise as an example that I can see. It is not relevant to the question. AGAIN, THE QUESTION IS - CREDIT CARD USAGE PRIOR TO APPLYING TO A MORTGAGE LOAN. FICO, VantageScore, CapitalOne, CreditWise all have no relevancy on the question itself. – KingsInnerSoul Jan 17 '17 at 19:41
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    If your score is low now, establishing a responsible credit history will help you. If your score is already decent, it arguably isn't worth making a special effort because it may have no effect on what loans you can get. Generally, unless you need to actively repair your reputation, it really isn't worth trying to optimize your score. – keshlam Jan 18 '17 at 0:00
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The ability to get a mortgage and the rate you are given are partially affected by your credit score (other big factors include your income and current liabilities.) Therefore, anything that can affect your credit score could have an overall affect on your ability to get a mortgage and also your rate. So to restate your question,

Does the last date of payment affect your credit score?

According to one credit expert, no, it does not have an effect.

As for your main question,

Is it better to not use credit cards at all for about two months prior to applying for a mortgage?

In general, avoiding using your CC for a couple of months shouldn't make a noticeable difference to your credit score, but there are some edge cases where it might:

  1. If every month you utilize a large percentage of your credit limit and then pay it in full, then it's possible that on the date your CC bank reports to the bureaus your utilization will be high which could artificially lower your credit score. If you find yourself in this situation you should ask for a credit line increase (but do not increase your spending as a result!) For example, if your limit is $1K and you habitually spend $600/month, even though you pay it in full your utilization could show up as 60% which could hurt your score. If you can get your limit raised to $2500 but keep your spending to $600, then your utilization would always be below 25%. If you request the credit increase and it's denied, then in this scenario avoiding using your card could help you. (Or perhaps keep the usage under $100 at any point in time.)
  2. If your credit score is just hovering on a boundary that matters for being eligible for a mortgage (580-660 range), then a few point swing in one direction could make or break a deal. The same goes for getting the best rates (740ish). You should ask your mortgage lender what the cutoffs are and if your score is close to the edge then maybe some tweaking could help you.
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    +1 - and your point 2 goes to back up why members are asking about the OP's current score. Instead of shouting "it doesn't matter" OP should understand the case where it's close, as you described. I was going to answer as well, but I'd rather avoid being shouted at. – JoeTaxpayer Jan 18 '17 at 0:20
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    Note to OP: On point #2 above, if you ask your lender for the exact cutoff numbers, don't rely on the VantageScore to see which side of the line you are on, as the lender is probably using FICO. – Ben Miller Jan 18 '17 at 0:34
  • On point #1, doesn't asking for a credit line increase usually result in a hard pull of the credit report, which would lower the credit score? – Ben Miller Jan 18 '17 at 1:04
  • I guess I should have added a slight detail. My credit score is considered excellent. My utilized debt ratio is under 10%, even 0%. I'm curious to know if the last payment date as a standalone data point is taken into consideration, even if it's $5 out of $10k. – KingsInnerSoul Jan 18 '17 at 3:54
  • @BenMiller - good question. I'm pretty sure that varies by bank. I think only 1 of the 5 banks I use does a hard pull for requested line increases. However, it seems to be only if I ask them to do it. I assume they do soft pulls on their own pretty frequently and auto raise the limit without a hard pull. This would probably be a good question to ask before making the request. – TTT Jan 18 '17 at 6:04
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It would be best to leave your accounts as they are and not add to it. I am assuming that you pay your balance every month in full and do not carry a balance over. One of the things that a loan officers look at is your debt to credit ratio. The lower, the better. So if you couple your credit report with your monthly credit card statements showing that you are not spending unnecessary money it should work in your favor.

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If you are happy with your credit score now, then you should not make any changes to your credit card activity. Continue doing what you have been doing that resulted in the score you have. Making more charges than usual, asking for credit line increases, opening new accounts, and closing old accounts can all have somewhat unpredictable short-term negative consequences to your credit score.

I believe this is the reason behind the common advice to not do anything different with your credit card accounts a month or two before you want to apply for a mortgage.

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