A few years ago, Jim Wang, a 39-year-old father of three, bought a new home in Fulton, Md. A high credit score helped him land his mortgage, but after the dust from the move settled, he was able to continue reaping the rewards of his financial prowess.
“We knew that, eventually, we’d have to replace a few of the appliances because they were nearing the end of their life,” said Wang. “We took advantage of credit cards that offered a big sign-up bonus for purchases because we knew they were on the horizon.”
For new homeowners, balancing the potential of rewards with good credit practices are the key to a happy home buying process. Here’s what you need to know:
Keep your credit in check
While many top credit card offers include benefits you can rack up during the move, (more on that below) don’t risk qualifying for your mortgage by making risky credit decisions now.
Don’t open new cards or close old ones.
Typically, when a lender pulls your credit during the mortgage process, the score is good for 120 days. However, say the buying process drags on, and, during that time, you apply for a new credit. When your credit is pulled a second time, the lender will see a dip in your score. Additionally, lenders can be notified of a new credit account, and they may need you to verify why you took the line and how much you’re paying toward it.
It’s also wise not to close any accounts either. Doing so will alter the length of your credit history and your credit utilization ratio, both of which can make your score drop.
Set up auto payments.
A payment that’s 30+ days late can knock your credit down 60 to 110 points. During the home buying process, that can have a big impact on your ability to qualify for a mortgage. Auto payments can help make sure that your payment schedule stays on track even during a hectic move.
Keep balances low.
Lenders look at your overall debt-to-income ratio (DTI), or the percentage of your monthly income compared with your debt payments, during the underwriting process. Most lenders look for a DTI of less than 45%, so swiping your card liberally can potentially disqualify you.
Maximize the money you’ll be spending
Once you become a homeowner, there are one-time expenses associated with moving along new monthly expenses you can use to your advantage.
Moving expenses
Depending on where you’re moving from and how much stuff you have, the cost of a move can really add up. While sticker shock may send you running to the hills, there is a silver lining: credit card rewards. When you spend on a rewards credit card, you can earn valuable airline miles, hotel points or cash back. These rewards can pay for your next vacation or provide cash back to pay for new home expenses.
This is also a good opportunity to meet the minimum spending requirements to qualify for a sign-up bonus on a new card. Paying for a moving truck or for travel expenses from your old home to your new one can easily help rack up the thousands of dollars typical of a bonus threshold. Pay attention to any bonus categories, like dining or gasoline, to really maximize your return.
Home improvements and new appliances
No matter how much you love your new home, you’re going to want to make some changes to personalize it, meaning paint, new floors and countertops may be on the horizon. You may also be on the hook for basic appliances like refrigerators or washing machines. These appliances can be pricey even for middle-of-the-road models, but are a great way to earn additional rewards. Some credit cards offer quarterly bonus categories centered around home improvement purchases, so make sure you look up your rewards schedule and time your purchase accordingly.
Monthly bills and maintenance
If you’ve been living in an apartment, you’ll likely notice that some expenses like utilities will go up when you move into your new home. If you live in a condo with an HOA or pay landscapers to keep your garden looking fresh, you may accumulate some easy-to-overlook costs as well. While some utility companies or contractors may charge a processing fee if you pay for them using a credit card, consider putting those that don’t on your rewards card. You were going to pay them anyway, so why not get something back in the process?
When you own your home, there’s also no landlord to call when something is broken, leaving you on the hook for the cost. A good rule of thumb is to save 1% of the value of your home each year towards\ future repairs. If your home is worth $300,000, you should set aside $250 per month (or $3,000 per year) in a home repairs savings account. When the time comes to make a repair, use your rewards card then immediately pay off the balance with the cash you’ve saved up. You’ll get the rewards and clear the balance before interest hits.
Which credit cards are best for new homeowners?
Before applying for a new credit card, think about what features and benefits are most important to you. Here are a few to consider:
0% APR promotional offers
A credit card that offers a 0% APR promotional offer on purchases and balance transfers can be great for big-ticket items you’ll need to pay back over time.
Bethany McCamish, a 26-year-old graphic designer who moved to Phoenix to Vancouver, Wash., applied for a 0% APR card to help make the transition easier for her and her husband. “We needed to have a little wiggle room to pay for repairs on the house we were selling and buy furniture for the new home,” she said. As an added bonus, the rewards earned made it easier for them to fly home to see family after the move.
There’s one caveat: It’s important to pay off the balance before the end of the promotional period. Otherwise, you’ll still be on the hook for interest.
Cashback credit cards
With cashback credit cards, all of your purchases provide a return that can be used however you see fit, from statement credits to gift cards to cold, hard cash deposited into your bank account. For example, if you bought a $1,000 refrigerator, you would earn $20 with a 2% cash back credit card on that purchase alone. Over time, that cash adds up, and you can use it to rebuild your savings after your move, fund renovations or projects around the house or accelerate the payoff of your mortgage.
Travel credit cards
With a lot of your money going toward buying the house and making it your own, you might think a vacation doesn’t fit your budget. By earning airline miles and hotel points with your everyday purchases, you could take a vacation for a fraction of the normal cost. There are bonus benefits to good travel cards as well, including free checked bags, lounge access and elite status at hotels.
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