We have entered a new age in the world of loans and credit. Times were such that one could count on getting a new credit card application almost daily – sometimes two. But it seems the ease of applying for a new credit card may be the Achilles heel to a prospective home buyer. Why?
It seems that one of the many things mortgage lenders look at when deciding if someone is a good credit risk is to look at how many credit card accounts they have open. The more you have, the less likely that part of your credit score will be good. It seems that folks who use credit cards a lot also have the lack of discipline necessary to pay off a home loan.
Credit cards were never intended for what we use them for today. They were only issued to folks who already had the money on deposit elsewhere carried a credit card to purchase items, then could pay it off by the end of the month with money they already had.
This eventually evolved into offering unsecured credit to those who didn’t have the means to pay off the “mini loan” each month, allowing just about anyone to buy something more expensive than they could afford, and make small monthly payments.
Frankly, this was an invention of savvy bankers looking for a way to make more money on interest. Unfortunately, it is now to their detriment to have made these bad loans as more and more people cannot afford the monthly payments and are defaulting on their credit cards.
The wise course, it seems, is to not even apply for that second or third credit card. The reason is simple. Should you ever desire to apply for more important kinds of loans like a home loan or a home improvement loan, you want to keep your record squeaky clean including a clean credit history; no bankruptcies, etc.
An example of a good credit risk might be someone who has a car loan, a gas card and maybe a one credit card. So a wise consumer would hold off on opening a new line of credit with a bank. It is just too easy to run up to your spending limit. And if you have two or more credit cards you can get in over your head, financially speaking, and the only choice is to file for bankruptcy.
But even filing for bankruptcy has become more difficult. The new bankruptcy laws instituted in 2005 make it harder for just anyone to write off their debts with a Chapter 7 bankruptcy and “start from scratch.”
You have to fit certain qualifications to even be considered for a Chapter 7 nowadays, otherwise you may have to consider the tougher Chapter 13 bankruptcy which still requires you to pay off your debts but in a more structured way.
So, if you do get yourself in trouble with credit card debt, you don’t have any easy options to get out of owing on those debts. To top that off, you can potentially ruin your chances of getting a loan to buy a new home or to improve the home you own, if you have a record of not paying your bills on time.