How Saving 10 Percent On Your Holiday Shopping Can Cost You Much More On Your Mortgage
While holiday shopping, stores bombard us with offers to save “10% or more”, just for opening a new credit card account.
Saving money is good thing, but if you’re planning to buy (or remortgage) your home in the next six months, be wary of how that new credit card can come back to bite you.
Each time you apply for a new credit card, you weaken your overall credit profile, dropping your credit score.
According to myFICO.com, “New Credit” makes up 10 percent of your credit score and includes:
- The number of new credit accounts created
- The ratio of new credit accounts to all credit account
- The category of credit to which the new credit accounts belong
- The time since the new credit accounts were established
Mortgage lenders use credit scores to predict the likelihood of a homeowner not paying on a home loan. The lower the score, the more likely a homeowner is to default.
Lower scores, therefore, have higher mortgage rates attached to them — and may have higher fees attached, too.
It’s okay to sign up for new credit cards at your favorite stores, but be aware of how it may impact your credit score. If you are not applying for a new home loan in the next six months, chances are that you’ll be alright.
But, if you will need a new home loan, consider whether saving 10 percent on a $100 purchase is worth paying an extra 0.125% on your new mortgage month after month.
