Credit Card Utilization % and obtaining a mortgage?

[llsnmerriman]

I just paid my credit card utilization down right under 50%  my scores will be updating in a week or so.  I should be around 670ish with both.  My question is, when applying for a mortgage should I pay my credit cards lower than 50% or will that not be a problem?  I Know score wise I will get a better interest rate, but I was just wondering will the utilization be a problem?  What is the recommended utilization on credit card usage?  Thank you!

[jkwheaton78]

I was always told by everyone to keep it under 30%.  I'm not sure if it will stop you from getting a mortgage but I do know they look at it. 

[StartingOver10]

What are your scores now?

If you are currently under 640 mid-score for your  FICO's you would be better off paying down your utilization to zero on all revolving accounts except for one - and have that one report a balance of less than 9% of your credit limit on that particular card.

Paying to less than 50% helps, but not nearly as much as paying off your cards except for one. Some people find that they optimize at less than 9% and others find that they optimize at even a lower balance, but not zero.

[Anonymous]

In the mortgage lending industry, underwriters do not use the utilization method, they will evaluate your credit (both revolving and installment)  based upon how much open credit is available to you at the time of application.  Underwriters prefer credit reports with a minimum of 4 credit cards , mortgage loan(s), and installment debt.  Your revolving credit cards should reflect 50% or less available use.  Mortgage loans weigh heavily in determining approval.  Installment debts will also weigh more heavily than revolving debt because it is a constant factor.  If installment debt has high balances that cannot be easily paid off, it may impact not only the debt-to-income ratio but it could be a determining factor for an underwriter's approval or denial.  Hope this helps.

[llsnmerriman]

Thanks, I have 3 cc's and 2 installments loans, no lates, for 4+ years.  My DTI will be under 10% with all debt after cc payments post.  

[Anonymous]

I have been in the mortgage business for 14 years and I have closed over 3,000 loans since I have been in the business. The reality is that unless you go with a lender who places overlays on top of conventional or FHA guidelines, you will be fine. If your score is on the lower end, and your DTI is on the higher end.. avoid going to a depository institution, and go with a mortgage company. If you have any more questions, just inbox me. Good luck!

[StartingOver10]

I wasn't very clear on my post. The utilization is not used for mortgage approval - it is used to get your FICO scores to increase. It has nothing to do with the underwriter, but it has everything to do with increasing your FICO.

Yes, the underwriter will look at DTI, but if your scores don't make it, then you won't get the loan. The first order of business is getting your scores up, and by reducing revolving utilization, your FICO scores will increase. Having your utilization at 50% is high - read the stickies in the scoring section. If you want to raise your score quickly, reduce the utilization.

The next step is working on DTI, particularly if you have large installment payments.

[MovingForward_2012]

Typically, min monthly CC payments are not included in the DTI if the account reflects a zero balance. This is another reason to get your card balances to where SO stated.

[DallasLoanGuy]

credit card utilization is almost never a problem.

low credit card balances might be consdered a compensating factor to get an exception for dti or something..... as a conservative attitude toward credit is appealing to lenders