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The Truth About Credit Pulls and Getting a Mortgage

  • Million Mile Secrets

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    What really happens if you open a new credit card during the mortgage underwriting process?  I asked team member Harlan to share his personal experience!

    Harlan:   I broke a cardinal rule during my mortgage process.  There was a great offer on the Citi Prestige card.  So I decided to open a new credit card while my mortgage was in underwriting!

    It caused me extra work.  But in the end, my mortgage was approved.  And got the house, the card, and the bonus points!

    Closing Day Was a Little Sweeter With Some Extra Bank Points! But I Wouldn’t Recommend This for Everyone

    Here’s what I learned from the process.

    You CAN Get a New Credit Card During a Mortgage…but the Lender Might Not Like It!

    I closed on my home in December 2015.  A couple of years ago, the banks were still shell-shocked from the recession and housing bubble.  And the lending process was extremely thorough.

    The Lender Scrutinized My New Credit Card. But My Excellent Credit Was Enough to Pull Me Through!

    At the time, there was a great sign-up offer for the Citi Prestige card.  I got the card in November 2015 to make the most of the $250 airline credit in 2015 and again in 2016.  Plus, I wanted the bonus points – so I pulled the trigger.

    My mortgage lender called within 10 minutes of the new card application and asked, “Why did you just open a new credit card?!”

    I said, “There was a great offer and I wanted to use the points for a vacation to the Bahamas!”  Which was the truth!

    I Had to Write a Letter Explaining Why I Got a New Credit Card 10 Minutes After Opening It

    I heard a groan on the other end of the phone.  They already knew I had a lot of credit cards.  “You need to write a letter explaining what you just told us.  And don’t use the card until the house closes!”  Because it would affect my debt-to-income ratio.

    So I wrote a letter that said:

    I opened a new credit card to earn bonus points for a vacation in the Bahamas.  I do not intend to carry a balance on the card until after the closing date.

    Then I had to sign, scan, and email it to them.

    So the banks definitely do care if you open a new card at any point during the mortgage underwriting process.

    Team member Jasmin recently refinanced her home.  And while she didn’t open a new credit card, the bank let her know they didn’t care much about the number of accounts, but how much she owed in total.  Which leads us to…

    Do NOT Do This If Your Credit Is Less Than Excellent!

    The reason the bank let me slip through with my new card is because my credit score was nearly 800 at the time.  And I had a low debt-to-income ratio.  If my credit score had been lower, or if the new card would’ve but my debt ratio over the acceptable limit, I would’ve been in trouble.

    Many folks on Reddit shared their experiences on this subject.  I encourage you to read the comments to get a sense of what works and what doesn’t!

    Plus, I didn’t get away unscathed.  Near the end of the process, I got another call from the lender.  They said I had to close one of my credit cards even though it didn’t have a balance.  So I had to say goodbye to a paid-off card.  Lenders recently adopted new rules about this.  And they’re not as strict as they were before.

    Still, I’d caution you to be very careful during the mortgage process.  And wait on new cards if you can – until you have your new keys in hand!

    Bottom Line

    Team member Harlan successfully opened a new credit card account while in the process of applying for a home loan.  And the lender noticed the new card within minutes!

    He had to write and sign a letter explaining the reason for the new card.  And says his excellent credit score and low debt ratio was the reason the lender let him get away with it.

    That said, if your credit isn’t great, or if you owe a lot on other accounts, it’s best to wait until you fully close on your home before you think about adding a new card to your wallet.

    Have you had luck opening a new card account during the home-buying process?

    Editorial Note: We're the Million Mile Secrets team. And we're proud of our content, opinions and analysis, and of our reader's comments. These haven’t been reviewed, approved or endorsed by any of the airlines, hotels, or credit card issuers which we often write about. And that’s just how we like it! :)