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DTI and zero balance credit cards

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therest
Member

DTI and zero balance credit cards

In January of this year  I applied for a mortgage loan and was pre approved. Lo and behold in the end I was not given the loan due to many factors.  The last LO who was helping us mentioned to us that we're not in bad shape but just needs a few months to have my score to better it self and told us to save more.  One of the main issues I was having was not having 3 credit lines open for 1 year.  I had 3 credit lines (2 CC and 1 car loan), but one of them (car loan) had not hit the 1 year mark.  The car loan hit 1 year in March.   

 

That was just some background info.  So the LO officer told me to pay off my CC, which both had low balances, to $0.  I did it and my scored suffered, so I ended up keeping them at a $5 balance and my scores went up.  However, now that I think more about, my LO was probably trying to lower my DTI. My car loan is about $220 and will be payed off in March 2017.  I'm looking to get a house at around $130k and I live in Houston.  One thing I would like to note is that I had almost no cash in January so I really had no business trying to buy a house.  Right now I have about $9.5K.  In September, when we plan to seriously look, I should have around $13.5K.   It's not a lot but I want to negotiate as closing costs as much as I can to help me keep as much cash as I can.   I'm expecting a child next month too. Anyways, I was just wondering if I should keep my balances at $0 for the sake of the DTI.  FYI my credit scores are right around 660-680. Thanks in advance.

Message 1 of 6
5 REPLIES 5
Anonymous
Not applicable

Re: DTI and zero balance credit cards

It depends on the loan you are trying to get. If you're going FHA, then your score is sufficient and holding onto debt for the sake of a few points seems to be counterproductive. On the other hand, if having a balance report makes a difference of like 20 points or something like that, then having a small balance may not be that bad. It all depends on what that balance is.

Message 2 of 6
Anonymous
Not applicable

Re: DTI and zero balance credit cards

If your balance is below what a typical "minimum payment" is, that amount will be added to your DTI. For example, if your card reports at $5, that will show as the minimum payment on the credit report and thus will be added to your DTI. If it improves your score, I'd let it report with the tiny amount... unless for some reason that small amount is pushing you over some kind of DTI threshold.

 

Also, not all lenders require 3 open tradelines FYI.

Message 3 of 6
StartingOver10
Moderator Emerita

Re: DTI and zero balance credit cards

What type of loan are you looking for, FHA or conventional?

Message 4 of 6
DallasLoanGuy
Super Contributor

Re: DTI and zero balance credit cards

i would leave them at $5 for the best scores.

 

not all lenders have the 3 trade line requirement if automated underwriting approves it.

likely have to have the 3 trade lines(over a yr old) if it is downgraded to manual.

 

 

Retired Lender
Message 5 of 6
therest
Member

Re: DTI and zero balance credit cards

I'm going for conventional.  

Message 6 of 6
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