Mortgage Lender tells me to not pay full credit card balance?

Question

I recently filled out a pre-approval application for a mortgage, however, the lender did a hard pull and told me they came back with no score. Credit karma gave me a score of 711, I know it is an estimate but I found it weird one had a score yet the lender got none. The lender told me they got no score because I was paying my credit card balance to zero. They told me to get a Capital One secured card and never pay it to zero. I could not find any affiliation between the lender and Capital One. Is leaving a $10 balance at all times a real strategy to gain a credit score or a possible reason the lender did not get any score when they did the hard inquiry? Everything I have read and learned says to pay off credit cards on time and to a zero balance since that is the point of credit and how you show you are financially responsible. I would appreciate any advice you can give me!

Andres Garcia · Answer

No, that lender definitely gave you bad information. It is absolutely NOT necessary to leave a balance on your credit cards, if you are going to carry a balance make sure it stays at less than 30% of the limit. What builds your credit score is the monthly reporting of "Paid As Agreed" if you owe 0 and you pay 0 then you are paid as agreed. There is no need to pay for gas and pay it off... it's mostly myths that people have come up with over time. If you have a zero score it's because you do not have any credit or the credit that you do have is less than 6 months old... more likely is less than 90 days old. Now, if your intent is to get approved for a mortgage and all you have is one prepaid credit card you are not putting yourself in the best position to secure a loan approval. I usually recommend 5 Tradlines or 5 separate accounts reporting to your credit. The best place to start, even before starting to get credit cards, is by going on the app store on your phone and searching "Build Credit" . There are several apps that will report credit lines to your credit report without getting you into debt. One is called "Self": You sign up for $25 a month for 24 months, it reports to your credit as an installment loan... the kicker is that after the 24 months they give you back most of the money that you paid in. After 4 months they give you the opportunity to open a secured credit card Another is called "Kikoff": These guys will report a $500 Limit Credit Line for less than 5 bucks a month. These modern services are a great place to start, they will never report late payments, won't get you into debt and build your credit score every bit as much as credit cards. After you 3 - 5 of these open for 90 days THEN apply for credit cards, you will get much better approvals, higher limits, lower rates, more rewards etc...Mortgage lenders will also be looking at how long those accounts have been open. An A+ credit file will have those 5 accounts open for 24 months...I say that because you won't necessarily be able to open account this week and then check back in a month... open the accounts get you started what helps your credit is managing those accounts successfully overtime. There are a few ways to speed up the process and give yourself an established history in a couple weeks instead of a couple of years... it won't work for everyone but it will help in certain circumstances.Reporting Rent To Credit: This can be done in a lot of different ways. Experian will do it for free but I think it is definitely worth paying for this. One reason it is worth the investment is because you want this reporting to all 3 credit bureaus. The BIG reason its worth the investment is because they can literally "go back in time" Not only will they report recent and future payments... they can go back FOUR YEARS, so if you've been paying rent for the last 4 years they can report all that history and in 2 weeks you can have 4 years worth of credit. I have seen "Rent Reporters" on multiple credit reports and most of those people have over 700 credit scores... They report to 2 out of 3 "Rental Karma" Is a competing service, I think they go back two years... "Report Rent to Credit" Services are in no shortage if you google now that you know the term. The second way to go "back in time" in a similar fashion is through another service called "Tomo Boost"... They have a report bills to credit angle. What will happen is that instead of you paying your bills directly, you pay tomo and they pay your bills and depending on how much you decide to pay them monthly they will report 1000 - 10000 in a type of credit line to credit reporting bureaus. There are a lot of these report bills to credit services available these days and most cost less than Tomo... Tomo Boost is the only one I mention because they can back up to 24 months... so if you've paying your cell, or Netflix or Electric Bill... literally any bill... they can back date up to 24 months. So... if you do both Tomo and Rent Reporters... inside of 30 Days you would have 2 accounts over 2 years old and your credit would be in a much better position for applying for a mortgageOne other thing that is worth mentioning is that INCOME is MUCH more important than credit when applying for a mortgage. Income is what has the biggest impact on the deal. I daresay that, for conforming loan, credit is pretty much pass-fail and not hard to get where it needs to be in most cases (my doing what I mention above)... but income is what really matters, once credit is "pass" how much will your income allow you to qualify for?

Erik Estrada · Answer

You should have a variety of revolving credit and preferably a long history. If you just have a couple of recently opened credit cards and you pay them off in full every month, it may not be enough credit history/mix for a mortgage. I am not a credit expert, but I noticed with many clients, the more credit mix, higher available lines of credit, and low utilization, helps out with mortgage credit.

Warren Powers · Answer

@Andres Garcia Lots of good info here! I can confirm, the balance on the credit card reporting date is what counts, not the payoff date. If I have a higher balance on the reporting date, I will get a lower fico. If I have a $0 balance on reporting date, I will have a good fico. I f I have a very small balance on the reporting date, I will have the best fico but only by a small amount. This would only matter if I was just a few points short of a qualifying tier.

Fred Shatzoff · Answer

Ask the lender who they used to pull your credit. Howlong have you had your accounts?

John Burke · Answer

Depends on how long it takes to reach your desired credit score. Yes, it will lead to paying interest but you're talking about a pretty insignificant amount based on a $45 balance.You need the balance to report over a period of time so the bureaus have something to score. Unfortunately, there's no real way to tell how long it will take. The lender could try running a what if simulator.

Eric Lind · Answer

With this $45 balance would you never pay it off? And would that lead to paying interest?

Tj M. · Answer

@Eric Lind I think they made a mistake. If you have credit cards I am pretty certain you have a score. I would try another lender. I have never heard of someone with zero credit score that has credit cards paid off or not. I have over 800 score never carry a balance and 1 mortgage for past 5 years with no other debt. Just another lender or ask them run credit again.

Tom S. · Answer

@Eric Lind Just adding, if your statement balance is $45, you should be able to pay it off within a few days after the statement is issued and not pay any interest. Then do a new charge before the next statement closes and pay off that one after. You shouldn't be paying any interest and still show activity.

Eric Lind · Answer

Ok thank you

Colby Dorris · Answer

Forever is a long time. You want to show the credit bureaus that you're using your line(s) of credit but you also want to limit the amount of interest you're paying. I'm not saying you should always carry a balance, but it doesn't hurt to show a small balance periodically. Try it for a couple months and see how your Credit Karma score changes.