Put Your Credit Cards to Work for You
Credit cards can work against you. When you apply for a mortgage, the bank assumes that you have reached your credit limits for all cards, even if that is not the case. Since you have such easy access to credit card debt, this is how the bank protects itself. Even if you have a stellar credit score and don’t carry any balances on your credit cards, all that plastic could work against you. Until now. Did you know that there is a way to put your credit cards to work without disrupting your credit rating?Assume that you have $10,000 in available credit through three credit cards. By not using this money, you are behaving responsibly; credit card debt is costly and risky. On the other hand, you have $10,000 at your disposal, and it could help you in the home buying process.
Mortgage lenders reward you for saving. If you can show at least $20,000 in assets, you are usually eligible for a lower interest rate. Meanwhile, the mortgage lenders do not reward you for not touching your credit cards. In fact, they do the opposite in assuming that you have borrowed money when you haven’t. This creates an interesting situation. You could use your available credit to increase your total assets without (in the bank’s mind) incurring any additional debt.
When you are getting ready to apply for a mortgage, take cash advances on all your credit cards until you have maxed them. Using the example above, you would now have an extra $10,000. Put that money into a savings account, and don’t touch it! As you go through the mortgage approval process, the bank will note that you have an additional $10,000 in assets. Hopefully, this will help you get past a threshold such as the $20,000 level, earning you a more favorable interest rate.
When you have been approved for your mortgage, use that money to repay your credit cards. Your balances will go back to $0, and your total assets will decline. But, this doesn’t matter. You just return to where you started, though you have a much better mortgage rate to show for it!
Use your credit cards to your advantage, but be careful. It is easy to spend money once you have it, and credit card debt is the most expensive kind. If you don’t repay the cash advances as soon as your mortgage has been approved, you may incur hundreds of dollars in interest and fees, costing you money unnecessarily.
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