Order of Operations: CC or Mortgage

[Anonymous]

Hi - I'm planning to apply for a mortgage but have zero revolving credit. Is it adviseable to open a CC first to establish available credit despite the inquiry? I've been searching and responses are mixed, and situation-dependent.

____________Some Details____________

I'm 32, had 10 years of meticulously managed, perfect credit. By 25 I had 50k of available revolving credit on 4 cc's. I ended up utilizing it to the fullest in grad school and missed some payments three years ago. Two were c/o, two were late. Debt picture at its max:

CC1 - 16k - late payments spring 2014, closed by grantor

CC2 - 15k - charged off spring 2014

CC3 - 10k - late payments spring 2014, closed by grantor

CC4 - 9k - charged off spring 2014

Fed Student Loan - 40k - no missed payments

For three years I buckled down and paid everything off. All four CC's paid to zero and I left 8k on the student loan just to have something actively reporting (and 6.55% rate doesn't warrant urgency). I didn't get any great concessions on the payoffs, no PFDs or settlements, I paid them back in full to the penny. I called on each one but none of the lenders were eager to do anything special. I just wanted to get rid of the debt so I wrote some big checks to be done with it.

To avoid future cash flow issues I've been socking everything away. I have about 70,000 in cash offset only by the 8,000 student loan (good standing, no missed payments, $125/mo). Monthy pretax income is just over $10k so debt-to-income is about 1%. AAoA via CK is 10yrs 9mo. TU and EQ fakos via CK are both 680. All the services indicate that 0/0 available credit & utilization is the biggest area of opportunity.

____________Conclusion____________

I want to take advantage of an FHA loan and a first time buyer program in AZ. My 2016 AGI qualifies but my 2017 will exceed the limits, so I need to get this done in the next 6 months. Is it worth it to bear a hard pull in order to get some revolving credit going? I can probably wait a month or two in between to temper the impact. Ultimately I'll want a revolving CC anyway to earn cashback and emergencies and such, so sooner is better, all else equal. What do you think?

[medicgrrl]

Have you pulled your mortgage scores from here?

[Anonymous]

No I haven't. I'm poking around and don't see anything other than the 1 & 3 Bureau FICO Scores offered.

For reference, here are CreditKarma and Credit.com current overviews. I suspect the credit.com one will improve on next pull, as it hasn't updated since I just paid off the last two CCs of $6k each. (Doesn't look like I can embed images, but linked below).

https://ibb.co/bXGDNk

[medicgrrl]

CK scores can be off by a lot. The 3B report will give you a variety of scores with it, including your mortgage scores. I recommend pulling those score's and then making a plan of action

[righthererightnow]

Make sure to have some useage of credit on your record, to be sure.

[Revelate]

Not having an open credit card isn't mandated on the scores used for mortgages unlike FICO 8/9.

TBH I'd spend the $60, see if I qualified before I started adding tradelines.   You'll still be able to generate a FICO score on the student loans, so see what's up before making changes.

General order of operations is mortgage before everything else; but in your case given that FHA isn't hard to qualify for score wise and you have history, find out first... if you don't meet the bare minimum hurdle (FHA rates aren't score dependent like other mortgage products) then yeah go get a CC right now and try to get as many positive payments on it before you pull the trigger on the mortgage... but I suspect you'll be fine now.

[CreditInspired]

OP
it is not mandatory to have revolving credit to get a mortgage as long as you don't have BAD credit. In my days as a Realtor, some mortgage lenders would accept alternate credit, which includes payments for such things as rent, utility bills, monthly insurance payments, child care, and rent-to-own agreements. I Googled this and I think it's okay to link the article here.
http://www.thesimpledollar.com/alternative-credit-help-you-get-a-mortgage/.
I think if this question was posted in the Mortgage forum, there's a possibility that a lendernon there can possibly direct you.

[Anonymous]

Hi guys - thank you all for the replies. I am eager to order credit scores but wanted to wait until I was sure my recent payoff payments were being reflected. At my most recent free report, one chargeoff was still showing an outstanding balance due.

The good news is that it just updated on CK and bumped my vantagescore fako by 40 points, from ~680 to ~720. Hopefully that action is approximately representative of FICO behavior as well. Here's the current breakdown of where I stand, only balance is a never-late student loan, though no available revolving credit either. 

https://ibb.co/hd1rpa

Regarding my initial question, I'm less concerned now, since someone posted that FHA rates aren't influenced by credit score. I'm quite sure I can qualify at 720, but just wanted to wait for all the healing actions to go through in hopes of achieving a lower long-term rate. (Why lock in rates the month before you jump 40 points, right?).

I'll give it another week or two and order my reports and scores through myFICO.  I had done this several years ago, but the historic data is no longer viewable in the myFICO account...do you lose all your history once your subscription lapses?

Any other credit maximization advice is greatly appreciated. I believe at this point all I can do is open a CC and keep a low/no balance, correct?

[Anonymous]

And just for anyone viewing who is currently in the situation i started from, it can be done!  I remember feeling hopeless, but just blocking it out and putting one foot in front of the other, keeping expenses low and continuing to earn and save eventually gets the job done. You just have to put aside the instant gratification and keep your eyes on the long-term goal. We got through multiple years of no vacations, no presents at Christmas, no restaurants, but now at the end I'm so glad we did.

I am now through 38 months of a 40 month plan and went from (50k) on CCs and (40k) student loans to less than (10k) student loans and +70k in cash & stock (and 50k in 401k, which I started at the same time). Somehow, sadly, most of the people I talk to at work have less capital & more debt today than when I started on my own plan. As someone finally coming out the other side, I want to reaffirm to others the indescribable value of pursuing what can seem like a long, arduous path when you're just starting out.

[Anonymous]

Hats off to you! Yes, it CAN be done!