You just closed on your first home. Congratulations! You can feel the excitement building as you focus on all the wonderful things you need to furnish your brand-new home. To your surprise, all of these offers are now being considered for 200 percent financing on a variety of different home equity and appliance options. Perfect, right? Well, think again, because these offers may come back to haunt you.
Congratulations on closing on your new home! Now that you’ve settled in, you might be wondering if it’s safe to use a credit card. The answer is a bit nuanced, so let’s dive into the details.
The Short Answer:
Yes you can use a credit card after closing on your new home. However it’s crucial to understand how applying for and using new credit can impact your financial situation and future borrowing potential.
The Long Answer:
While you can technically use a credit card after closing, it’s generally advisable to wait for a few reasons:
1. Protecting Your Mortgage Approval:
Applying for new credit after closing can trigger a hard inquiry on your credit report, potentially lowering your credit score. This could jeopardize your mortgage approval, especially if you’re close to the edge of qualifying.
2. Avoiding Increased Debt-to-Income Ratio:
Your debt-to-income ratio (DTI) is a crucial factor in determining your creditworthiness. Increasing your debt-to-income ratio (DTI) by taking on a new credit card can make it more difficult for you to be approved for future credit cards or loans.
3. Managing Your Finances:
Moving into a new home often comes with unexpected expenses. It’s wise to wait until you have a clear understanding of your new budget and financial obligations before taking on additional debt.
4. Maximizing Credit Card Benefits:
Some credit cards offer lucrative sign-up bonuses or introductory APRs. You can take advantage of these advantages without risking your mortgage approval if you wait until after closing.
When It’s Okay to Apply for a Credit Card:
If you’ve carefully considered the factors mentioned above and are confident that applying for a credit card won’t negatively impact your finances, you can proceed. Here are some situations where it might be advantageous:
1. Building Credit:
Building your credit history and raising your credit score can be accomplished by using credit cards sensibly and making on-time balance payments.
2. Earning Rewards:
A lot of credit cards come with reward programs that let you get cash back, miles, or points for your purchases. This can be a great way to offset the cost of homeownership expenses.
3. Taking Advantage of Introductory Offers:
Some credit cards offer introductory 0% APR periods or balance transfer offers. These can be helpful for financing large purchases or consolidating existing debt.
4. Establishing an Emergency Fund:
Having a credit card with a low balance can serve as a safety net for unexpected expenses.
Tips for Using Credit Cards After Closing:
- Choose the right card: Consider your spending habits and financial goals when selecting a credit card.
- Use your card responsibly: Avoid overspending and pay your balance in full each month to avoid interest charges.
- Monitor your credit score: Keep an eye on your credit score to ensure that your new credit card usage isn’t negatively impacting it.
- Seek professional advice: If you have any doubts or concerns, consult a financial advisor for personalized guidance.
Additional Resources:
- LendingTree: How Soon Can You Apply for Credit After Closing?
- myFICO Forums: Applying for credit after closing.
While you can use a credit card after closing on your new home, it’s essential to proceed cautiously and consider the potential impact on your finances. By carefully weighing the pros and cons and using your credit card responsibly, you can maximize its benefits without jeopardizing your financial well-being.
How does opening a store credit card affect my credit score?
Whether or not you open the account, the credit inquiry itself can drop your score by five to ten points. Now, if you do open these and use them all, your score will drop by 25–50 points. Should these be $1000 each, and you have obtained and utilized all three cards, your credit score could potentially decline by 75-150 points.
The real reason you’re being offered a credit card:
First off, it’s no coincidence that you’re being offered these “great” deals on a store credit card. Thanks to public records and credit databases, the whole world knows you just bought a home. It’s similar to receiving letter after letter from attorneys after being involved in an automobile accident.
Sadly, that offer is far too alluring for a lot of people, and before they realize it, they have charged $3000 on three separate, brand-new credit cards. You might wonder, “What’s the issue if I can afford the payments?” Well, it all comes down to your credit score.
Generally speaking, opening a credit card right away before or after purchasing a home is not a smart idea. Why? Well, credit cards are addictive. Possessing more makes you more likely to spend, and your credit score will suffer greatly if you are unable to make your payments.
Should I Close a Paid Credit Card Or Leave It Open?
FAQ
How soon after closing can I use my credit card?
Can I use my credit card after the statement closing date?
Can I open a credit card after closing it?
How long after closing should you apply for a credit card?
For a home purchase, it’s best to wait at least a full business day after closing before applying for any new credit cards to make sure your loan has been funded and disbursed. “Until you have the keys, don’t do anything,” Karetskiy said.
Should you close an old credit card?
If you’re thinking about closing an old credit card, make sure you first understand the potential consequences your decision could have on your credit scores. There may be cases when closing a card makes sense—when it carries a high annual fee, for instance, or is negatively affecting your financial health.
What happens if a credit card is closed?
After all, as soon as you give the go-ahead, you’ll lose access to that line of credit and any other benefits the card provides. While closing the card may seem irreversible, an issuer may reopen your account depending on the reason it was closed. In many cases, however, you may need to reapply for the same card as a new account.
Should I use my credit card 2 days before the closing date?
However, if you use your card 2 days before the closing date and you’re not prepared to pay the balance off before the closing date, anticipate an interest charge. To avoid a hefty interest charge, it can make financial sense to make only smaller purchases on your card shortly before the closing date.