Calling all professional mortgage lenders……..hard question?

Deal Score0

Hey everyone,

I just raised the limit on one of my credit cards because I was told that it would raise my credit score (things, such as debt, being equal ) based on my available credit to debt ratio. This CNN article seems to concur:…

After telling my friend about this, whom has worked as a car salesman, he said he was always told by banks that a higher credit limit (used or un-used) would negatively affect your rate and the amount they could lend you, overall, getting a loan for a large purchase such as a house or auto.

I am in the process of eventually purchasing a house and wanted to know if having a higher credit limit would positively or negatively affect the rate and amount of this type of loan, even though it seems to have a positive effect on your FICO score. Any answers from professional mortgage finance professionals would just be icing on the cake.

Thanks in advance everyone.

  1. Reply
    paula d
    February 6, 2011 at 4:11 am

    It depends on how hard an underwriter looks at your credit report. Although it reduced your credit used by making your available credit larger, some will look at the total amount of credit available to you and say, “Hmmmm…if this person maxed everything out they would have $ this much debt. That’s too much.” It’s not just limited to formulas…real people actually look at this stuff and make decisions on gut feelings as well.

  2. Reply
    February 6, 2011 at 5:06 am

    I read Paula’s answer and she is right!! Another thing that lenders look at is how many credit cards you have. And like she said, if everything is maxed out, a lender may believe that you could be over-extended. The best policy is not to borrow money for things that you don’t need. That way, you don’t get into trouble financially.

  3. Reply
    ron d
    February 6, 2011 at 5:23 am

    The lower the credit card balance the better, so the higher the limited the lower the balance. Your month DTI is not base on how much you owe, but how much you pay out monthly.

    So a credit card with a $ 5000 limit, you DTI would only be base on the minimum payment on a balance of $ 2000(?)

    Try to keep your balance below 45%…….
    Hope that answer your question…

  4. Reply
    February 6, 2011 at 5:44 am

    Most of the mortgage lending business is FICO driven, however investors (lenders) are more concerned on whether you have enough income to pay on any current credit obligations and the upcoming obligation of a mortgage payment. Your Fico Score along with your debt to income ratio will determine what loan program you qualify for. The higher the score and the higher the income along with a low balance of debt will certainly guaranty you the best loan program with the lowest rate. A higher credit limit can affect what the conditions that are required once an underwriter approves you for your loan. If you have a high balance owing, they may require that it be paid off through closing which would mean your funds to close would include that amount. If your balance is very low or zero and your debt to income ratio is within the guidelines of the loan program, you would not have anything to worry about.

  5. Reply
    February 6, 2011 at 6:39 am

    i am afraid your friend is wrong. Having one or two very high credit limit cards will raise your scores. haveing many small credit cards will lower your score. also the older the card the better the score. thats why raising the limit on an older card is much wiser than opening a new higher card. also you shoudl never go over half your credit limit. that lowers your score. Things like personal loans lower your scores. Mortgages raise your score after 6 months if you are a first time byer. Car loans will lower your score when new, but after time will raise.

  6. Reply
    February 6, 2011 at 7:27 am

    Your FICO score should theoretically go up with a higher limit, and a lower usage percentage, both on that card and on overall credit availability.

    Your friend is simply wrong. Or at least he is when it comes to mortgages.

    I have yet to ever hear an underwriter express concern because there’s too much available credit. It may be handled differently by auto financing, but I doubt it, since most of that is FICO-based as well.

    My best guess is that your car salesman friend was told that, because it’s a good way to beat up a client about their credit and get them to accept a higher rate than they could’ve had otherwise. Auto dealers get yield spread premiums (back points) from the lender they sell their loans to, based on the rate charged. The higher the rate, the more they get.

    Many mortgage companies will do a similar thing, basically putting down your credit rating so you’ll feel lucky to get a loan at any price. That way, they can make another 1-2% from selling you a higher rate when they sell the loan off to the investing bank.

    It is possible, however, to have too many credit card or revolving accounts. And it’s possible to have too many that currently have balances. Both of those are “reason codes” that affect your score. But they are minor issues compared to maxing out a card, or maxing out your overall credit. Having a higher limit on your card will not be a negative unless you spend it all.

  7. Reply
    February 6, 2011 at 7:54 am

    I was a mortgage broker for 2 years, and never once had an issue with available credit affecting the loan.

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