Have you opened your mailbox to find a bank offering you a credit card for a low interest rate or cash back on purchases? Or, have you been at a store and the salesperson tells you that if you sign up for their credit card at that very moment, you’ll save “X” amount of money on the purchases you’re making? Well, before you sign on the dotted line, it’s important to understand some critical facts about credit cards.

Your credit card usage does affect your credit score. Not only does your credit score determine whether the lender will give you the new credit card, but it also influences whether you’ll qualify for home, car or other types of loans.

When lenders review credit card or loan applications, they’ll check your credit report to determine how much of a risk you are in repaying the money they loan you. Some things they look for include:

• Your outstanding debt.
• The number and type of credit accounts.
• How much debt you have compared to your total available debt.
• Your debt-to-income ratio.
• The length of your credit history.
• If you’ve had any late payments.
• Any debt collection activities.
• New inquiries for additional credit.

Based on your credit history, you’ve given a credit score that predicts your future credit performance. If your credit score is high, lenders will view you as more trustworthy in repaying what you owe. And you are more apt to receive the new credit line. But if your credit score is low, they may: 1) require you to pay a higher interest rate on the new credit card or loan; or 2) they may reject your application altogether.

Therefore, to increase your credit score, it’s important to show banks and other lenders that you’re consistently paying the interest and principle on your credit cards and other loans. You’re paying your bills on time. You’re keeping your credit-to-debt ratio as low as possible. And, you’re not opening new lines of credit.

By managing your credit responsibly, you increase your odds of qualifying for that new credit card. And if you’re thinking of buying a home in the near future, responsible credit card use means you’re more likely to qualify for a home loan as well.

To assess your future home buying plans, contact one of our senior mortgage specialists. They’ll work with you to determine your specific needs and find a solution that meets your goals.