Do lenders take available credit into consideration?

Question

I am trying to decide if it's a good investment to purchase an AU or two before I apply for funding. (I'm going either the HML or Portfolio route). If they look at income, liquid assets, and debt to income, would available credit from revolving lines of credit be taken into consideration too? (If Authorized Users only).

Fyi, liquid assets and debt to income are both good, income is mediocre, and I have one low-limit credit card, no delinquencies.

Dan Mahoney · Answer

@Jazmine S. I don't think anyone has actually answered your question about AU tradelines.  I'm not sure folks here understand what you are trying to do.  For everyone else's benefit, Jazmine is talking about subscribing to a service that will "rent" you an Authorized User account on a stranger's credit card for the purposes of improving your own credit report.

The answer to your question has 3 parts.

1) Adding an AU tradeline will help your credit score under most scoring models, including FICO 8, if it is seasoned (i.e., increases your average account age), has a perfect payment history, and has a zero or very low balance (i.e., reduces your revolving debt as a % of available credit).  I would be wary of purchasing AUs, as FICO is actively trying to reduce the benefit of that practice.  Quoting from MyFico.com:

2) Adding AU tradelines will only benefit you if your lender is basing decisions off a credit scoring model, as they do for conventional mortgages.  HML and portfolio lenders are much more likely to use a manual review, and will rely less (and possibly not at all) on AU tradelines for assessing creditworthiness.  From what you describe, you have a pretty thin credit file whether or not you add a couple AUs.

3) Lastly, you state that the lender looks at income, liquid assets and debt to income.  An AU tradeline will not impact any of these metrics.  Available credit only factors into credit utilization.

Bill Hamilton · Answer

First, don't EVER close a credit card that is in good standing unless you have a huge number of open accounts. Use it every few months, leave a balance of a few dollars on it for a month or two, and then pay it off. Repeat and recycle forever. I won't go into the myriad of reasons this is true but, it is. Secondly, if you have decided on a hard money or portfolio lender, then an AU will probably do  nothing for you.  Many scoring models have been changed to ignore AU's for just this reason. Also, most HM lenders and a lot of PM lenders base their loan off the LTV of the property and possibly your assets.

Jazmine S. · Answer

Thank you so much Dan Mahoney

Dan to the rescue! ;) Very transparent, straightforward, and detailed as well. Very much appreciated.

Jazmine S. · Answer

John D. Yes I absolutely agree! You never want to get rid of revolving credit (unless you have such a huge (credit) portfolio that it doesn't matter anymore) because you'll never have seasoned lines/credit history if you just keep deleting them every couple of years. :) And I have seen people who have "line closed by lender" marks on their portfolio after lack of usage for long periods of time, so I also love your bi-annual purchase suggestion.

Anthony Dooley · Answer

John D.. Yes, I've heard that too. That is exactly what people in the credit score business tell you. I have nothing to lose by telling the truth as I know it.  If you find an income producing property at the right price and you have a good down payment, a lender will fund the deal or  a family member will fund the deal for a piece of the action.  If you accumulate assets and get rid of liabilities, lenders will gladly give you money.  If you can come up with 25% down, you can get financed on almost any deal and if the bank won't do it, it's probably not a good deal.

Bill Hamilton · Answer

Oops. I was somewhat late in actually posting what I had written (didn't realize I hadn't hit the button), and a number of people posted good, solid replies already. Although I still stand by my post, much of it became redundant.

John D. · Answer

@Anthony Dooley , @Jazmine S.I believe closing cards you are not using may hurt ones score since you are lowering your available credit that shows up on the report.  Best thing to do is at least make a purchase once every 6 months on cards you do not regularly use and pay it off right away.  The link below is from Experian and has some good info.

Hope this helps!

http://www.experian.com/blogs/ask-experian/why-closing-a-credit-card-can-hurt-your-credit-scores/

Anthony Dooley · Answer

I would close available lines of credit, like cards, if you never use them anyway.  Also, if the bank will not "partner" with you on a real estate deal, IT'S PROBABLY A BAD DEAL. Find a good deal, and the lender can be more flexible with the little stuff.

Andrew Postell · Answer

@Jazmine S. a good lender should be able to advise you on your credit BEFORE you officially apply for a loan.  I would highly recommend to speak with a professional on this to properly advise you on your credit and which direction to take on it.  There are numerous factor that will impact your score.  Your "available credit" does impact your actual credit score but opening anything new will bring it down.  Some banks will even pay for credit counseling if you need it.  Feel free to private message me if you need more information.

Michaela G. · Answer

And keep in mind that credit lines are scored like a credit card and not like an installment loan. So, if the credit line is highly utilized your total utilization ratio will greatly destroy your credit score, until it's paid down to at least 30% utilization.

Do lenders take available credit into consideration?

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