How many credit cards do you need to get a mortgage?
One new card might not be enough if it’s your only credit account
Steve Bucci has been helping people decode and master personal finance issues for more than 20 years. He is the author of “Credit Management Kit For Dummies,” “Credit Repair Kit For Dummies,” “Barnes and Noble Debt Management,” co-author of “Managing Your Money All-In-One For Dummies” and “Debt Repair Kit For Dummies” (Australia). Steve is an experienced expert witness in identity theft, credit scoring and debt related cases. He has been a presenter at the FICO InterACT Global Conference, the Federal Reserve and the International Credit Symposium at Cambridge University in the UK.
How many credit cards do you need to get a mortgage?
You won't be able to get a FICO credit score and qualify for a mortgage if your only account is a credit card that's less than six months old. But you can build up your credit history over time by adding new cards or loans, paying on time and keeping balances as low as possible.
Dear Keeping Score,
I have just one credit card from Capital One. I don’t have auto loans or student loans or any other credit card. I’m trying to buy a home. Will this hurt my chances of getting a mortgage loan? Someone said I need to have at least three credit cards to qualify. -Kachi
Mortgage loans are like people. They come in all shapes, sizes and personalities. Among the main type of mortgage products out there are fixed rate, adjustable rate, government insured, conventional, FHA, VA, USDA RHS, jumbo, conforming and more. Each will have different underwriting rules, which include different credit score parameters.
What they all have in common is the need for a credit score. With just one credit card, you may not have enough data in your credit files to enable a typical FICO score to be generated, particularly if your card account is less than six months old. But don’t despair, there are some simple things you can do.
- If you have a bank, lender or broker you want to work with already, ask them if they’ll accept a VantageScore. VantageScore needs only one month of credit history, whereas FICO’s model requires six months, so a relatively new, single card may already be enough to score a mortgage loan.
- Yes, you can open another credit card account, but it will lower your score temporarily via a hard inquiry, and it will lower your average age of accounts. If you decide to go this route, I suggest you also open a secured personal loan, which will also drop your score a bit initially, but the combination of a new credit card and a long will eventually give your score an extra boost from having more than one type of credit reported on your credit file. In the long run, this may be worth the temporary damage that opening new accounts will cause, but you may have to wait a year for the best results.
- Look for a lender that will accept non-traditional data to rescore your file. Some lenders accept rent, cable or cell phone payment history as a form of credit history. And the credit bureau Experian shows rent payments if they are reported.
Tip: Opening a new card right before applying for a mortgage is a bad idea, as it can lower your average account age, reduce the age of your most recently opened account and add a hard inquiry to your credit report.
The next thing I would suggest is to get a copy of your credit report, if you haven’t done so already. You can access your reports from the three major credit reporting agencies – Equifax, Experian and TransUnion – for free at least once a year at annualcreditreport.com.
Once you have your reports in hand, go over them carefully to be sure the information listed is all correct. If you find errors, follow the dispute process at all three agencies. This may take a month or two, so plan ahead. Also, remember that correct information – positive or negative – generally cannot be removed from your report.
I strongly suggest you also get a credit score for all three credit bureau files. They may all be different because they don’t necessarily all have the same information. There may be a charge for a score or you may be able to access one through your Capital One card or other free scores sites. Be aware these scores are probably not the exact same score your mortgage lender will use, but they may be good indicators of where you stand.
See related: Free ways to check credit to monitor scores, reports
If your score is not where you need it to be, I would suggest that you give yourself six months to a year to get your credit score ducks in a row. Be sure to make consistent on-time payments and keep low balances on any credit accounts you may have. The difference between a loan with a lower credit score and one with a good score can be nearly $70,000 over the term of the loan, plus higher fees and mortgage insurance premiums.
When you’re ready to start looking at properties, I also suggest you look at pre-qualifying for a loan. Shopping around for a good rate is a common practice. For this reason, any loan inquiries made in a 45-day period will only score as a single inquiry. And that won’t show up for a month.
Buying a home is the largest single purchase most consumers will make. You want to be sure you are putting your best foot forward before you start.
Remember to keep track of your score!