Author Topic: Playing the points game AND buying a first home  (Read 690 times)

WootWoot

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Playing the points game AND buying a first home
« on: July 10, 2018, 10:00:34 AM »
Hello folks--Mr. Woot and I are going to buy our first home soon. We're in the "looking stage" right now and met with a mortgage broker last weekend. When he pulled our credit report, he congratulated us on having excellent credit, and advised that we close out any "small accounts" (i.e. not major credit cards) as cyberhacking has become more prevalent, as we all know. So far I got rid of a Kohl's charge card I never use.

Second thing: I would like to travel and am new to the points game. On a points-based forum, I asked which card might work best for me. I got a reply to this effect:
Avoid either opening or closing any card accounts before you buy a house. Doing either will most likely negatively impact your credit score in the short term, which is the last thing you want to do right before applying for a mortgage. If you're planning on getting a new mortgage within the next year, I would wait until after you've closed on your mortgage before making any significant credit changes. Unless you spend a ton of money on cards (like, hundreds of thousands,) what extra rewards you may be able to earn on a card are going to pale in comparison with the cost of even a small bump in APR on a mortgage.

OK, I don't spend a ton of money on cards. I plan to use the card to pay my monthly bills (groceries and utilities, mostly). We also have some medical bills we'd like to pay off (less than $2,000). Right now I have an Amazon Chase card and a Cap One Quicksilver card. I plan to close the Quicksilver one.

Is opening/closing cards really going to have a negative effect on my getting a mortgage? The broker said our credit rating is so good, all we have to do is find a house. I pay my balance in full every month.

Can anyone advise me on this with a second or third opinion? Thank you!

Catbert

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Re: Playing the points game AND buying a first home
« Reply #1 on: July 10, 2018, 10:45:26 AM »
Keep your oldest card open.  Part of your score is based on "length of credit". 

Part of the score is % of utilization.  If you have $20,000 total credit limit and use $2000 of it your utilization is 10%.  If you close one card and your collective credit limit drops to $10,000 then your utilization is 20%

Adding new card will give you a slight ding for the hard credit pull (~6 points IME) but your total available credit will go up and utilization % go down.

I don't think adding a single card a year out from buying a house will be a problem.  But I wouldn't churn cc for 9-12 months before buying.  In general I would say that if you're happy with your current score don't mess with it much.   

Systems101

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Re: Playing the points game AND buying a first home
« Reply #2 on: July 10, 2018, 10:53:22 AM »
Is opening/closing cards really going to have a negative effect on my getting a mortgage? The broker said our credit rating is so good, all we have to do is find a house. I pay my balance in full every month.

In my opinion, this isn't about whether it WILL, it's about whether it COULD (and if it does impact your rate, that will be VERY VERY expensive).  It's kind of like having an inexperienced pilot land a 747... There's no guarantee anything goes wrong, but if it does, it's very likely to be fatal.  So even if you believe it's a "low to medium" likelihood, it's a "very high" impact...

Thus: Don't change anything - open OR close.  Both can impact your credit.  If it's good now, don't mess with it.

You credit is based on a few things: utilization (how much of your credit you use), average age of account, payment history, number of hard pulls.

Opening is especially problematic, as not only does it create a new "hard pull", it could give a big spike downward in average age of account, especially if you only have a few cards.

Mine plunged about 60 points over the first 4 months when I started playing the points game.  15 months later it has basically fully recovered (though I haven't opened a new card in ~6 mo).  My utilization is MUCH lower, my average age of account is maybe 1/3 of what it used to be but is still tolerable given the other metrics.  Hard pulls are bad for the first few months, then they are present on the account for like 2 years, but their impact degrades fairly quickly.

Kierun

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Re: Playing the points game AND buying a first home
« Reply #3 on: July 10, 2018, 11:27:32 AM »
It would also depend on where in the excellent spectrum your score falls.  If you're on the cusp between excellent and good a ding could hurt your rate, but if you're solidly in the excellent area and a ding would just drop you to the lower part of excellent then it shouldn't really affect your rate.  An A is an A whether you're 90% or 100%, disregarding that +/- scale.

frugaliknowit

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Re: Playing the points game AND buying a first home
« Reply #4 on: July 10, 2018, 11:35:16 AM »
...."When he pulled our credit report, he congratulated us on having excellent credit, and advised that we close out any "small accounts" (i.e. not major credit cards) as cyberhacking has become more prevalent, as we all know. So far I got rid of a Kohl's charge card I never use..."

You were schmoozed by a mortgage broker...

If I were serious about buying a home soon, I would hold off on churning.  You never know what the potential lender's algorithm might do.

WootWoot

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Re: Playing the points game AND buying a first home
« Reply #5 on: July 10, 2018, 11:37:44 AM »
...."When he pulled our credit report, he congratulated us on having excellent credit, and advised that we close out any "small accounts" (i.e. not major credit cards) as cyberhacking has become more prevalent, as we all know. So far I got rid of a Kohl's charge card I never use..."

You were schmoozed by a mortgage broker...

If I were serious about buying a home soon, I would hold off on churning.  You never know what the potential lender's algorithm might do.
Well, I don't know about schmoozing. I pay every bill on time (utility included), I pay my balance on my credit cards every month, neither of us has ever declared bankruptcy, we don't have a car loan.  I really thought he was being honest.

But based on all the advice here and on the other forum, I will hold off on churning. It's a bit disappointing, because it means I will probably not be able to travel again for a while. It's all a question of balance...and sacrifice.

Car Jack

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Re: Playing the points game AND buying a first home
« Reply #6 on: July 10, 2018, 01:37:32 PM »
Every card you open will cost you (about) 20 points on your credit score.  I churn credit cards for the sign up bonus so do this every month or so.  It sounds like you don't buy a ton on credit so perhaps get a citi doublecash and be done with it.  Get the cash, no hassle so you can spend it on whatever you want.

Between churning and manufactured spending and gas points, I probably put $100k on credit a year.  My main go to is still citi double cash.  I do keep track and do bonus categories and rotating categories. 


calimom

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Re: Playing the points game AND buying a first home
« Reply #7 on: July 10, 2018, 11:48:22 PM »
Pick one thing you would like to do. Travel or have a house with a desirable mortgage percentage. Once you have your house, resume your credit card churning. Conversely, if optimal travel is more important to you at this point, that's all good, but delay the house purchase and continue renting.

neophyte

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Re: Playing the points game AND buying a first home
« Reply #8 on: July 11, 2018, 07:11:19 AM »
It's probably not worth risking it if you're seriously looking for a house, but I did this last year and I don't think it mattered much.  I'd been casually house hunting on and off for a few years without finding anything and I wasn't actively looking at the time, so I opened a Chase Sapphire Reserve card for the sign up bonus a week or so before I decided to buy my house. 

My credit took a bit of a hit, but it wasn't enough to get me out of the top bracket for mortgage rates. In addition to the new account, my actual $$ on credit went up because I had to meet the $3k spend, but my % utilization went down since my limit about doubled with the new card.

I had to answer some questions about the card, and I think the mortgage broker and I were both kind of amused by me saying "well, I wasn't really planning to buy a house" but everything worked out. I was able to put the home inspection and the first year of insurance on the card to help meet my minimum spend too.
« Last Edit: July 11, 2018, 07:14:09 AM by neophyte »

WootWoot

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Re: Playing the points game AND buying a first home
« Reply #9 on: July 11, 2018, 09:59:19 AM »
Every card you open will cost you (about) 20 points on your credit score.  I churn credit cards for the sign up bonus so do this every month or so.  It sounds like you don't buy a ton on credit so perhaps get a citi doublecash and be done with it.  Get the cash, no hassle so you can spend it on whatever you want.

Between churning and manufactured spending and gas points, I probably put $100k on credit a year.  My main go to is still citi double cash.  I do keep track and do bonus categories and rotating categories.

Thanks for the suggestion. Any particular reason why Citi Doublecash? Someone recommended the Chase family of cards to me recently.

WootWoot

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Re: Playing the points game AND buying a first home
« Reply #10 on: July 11, 2018, 10:00:26 AM »
Pick one thing you would like to do. Travel or have a house with a desirable mortgage percentage. Once you have your house, resume your credit card churning. Conversely, if optimal travel is more important to you at this point, that's all good, but delay the house purchase and continue renting.

I wish it were that sample. I can't stay where I'm renting and rents are very high in my area. It makes more sense to buy a house. This may sound overly dramatic, but the thought of not being able to travel plunges me into depression.

patchyfacialhair

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Re: Playing the points game AND buying a first home
« Reply #11 on: July 11, 2018, 01:11:38 PM »
Pick one thing you would like to do. Travel or have a house with a desirable mortgage percentage. Once you have your house, resume your credit card churning. Conversely, if optimal travel is more important to you at this point, that's all good, but delay the house purchase and continue renting.

I wish it were that sample. I can't stay where I'm renting and rents are very high in my area. It makes more sense to buy a house. This may sound overly dramatic, but the thought of not being able to travel plunges me into depression.

If prioritizing house purchasing and travel and the thought of no travel "plunges" you into depression, maybe you're not ready to buy a house. Houses have many unexpected costs (and expected ones too) were sometimes you may have to make a decision not to travel in order to do what's necessary for the house.

I hope I don't sound like I'm scolding you, but it's a reality that we had to face 1.5 years ago when we bought our house. You can afford anything, but you can't afford everything (in general).

WootWoot

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Re: Playing the points game AND buying a first home
« Reply #12 on: July 12, 2018, 08:46:54 AM »
Pick one thing you would like to do. Travel or have a house with a desirable mortgage percentage. Once you have your house, resume your credit card churning. Conversely, if optimal travel is more important to you at this point, that's all good, but delay the house purchase and continue renting.

I wish it were that sample. I can't stay where I'm renting and rents are very high in my area. It makes more sense to buy a house. This may sound overly dramatic, but the thought of not being able to travel plunges me into depression.

Oh, you're not scolding me. I understand it's a difficult situation, and I'm far from happy with it. As they say on Facebook, It's complicated.


If prioritizing house purchasing and travel and the thought of no travel "plunges" you into depression, maybe you're not ready to buy a house. Houses have many unexpected costs (and expected ones too) were sometimes you may have to make a decision not to travel in order to do what's necessary for the house.

I hope I don't sound like I'm scolding you, but it's a reality that we had to face 1.5 years ago when we bought our house. You can afford anything, but you can't afford everything (in general).