Do I pay off my credit cards or get a loan before buying a house

So I’m in a bit of a situation and could use some advice.

About a year ago, my credit was great. I had around $8-10k in debt, $60-80k in available credit, and a score in the high 700s. Then, about four months ago, everything went sideways. I missed a payment by accident (first time ever). The creditor agreed to remove it from my report, but during that time, my other creditors started lowering my available credit. Now, my credit utilization went from 12% to 33%, and my score dropped. To make things worse, the cards I kept higher balances on lowered my credit limits to nearly match the balances, making it look like I maxed them out.

I haven’t missed any other payments, and I’ve been making larger-than-usual payments. But I’ve noticed when I pay a large chunk, the credit card companies just lower my available credit again, so it feels like I’m not making progress. I’ve saved up enough to make another big payment, but I’m hesitant because of what’s been happening.

Here’s the situation: Do I

  1. Keep making larger payments and hope they stop lowering my limits?
  2. Get a debt consolidation loan to pay off the cards, free up the credit, and maybe improve my score?

To complicate things, I need to buy a house soon. The plan was to wait until spring, sell our current home, use the equity to pay off debts, and then buy a new place. We were planning to use my credit to get the loan, but with my current score, I’m worried I won’t qualify. What should I do?

The credit card companies see you as a risk and are cutting your limits. Pay off the cards, and things will improve. They’re protecting themselves right now. Big credit limits aren’t necessary unless you spend a lot every month. Focus on paying the debt, not on increasing your limits.

@Adi
True, my wife and I have a high net worth, and we only use one card with a $20k limit. That’s all we need for everyday expenses and travel.

Charlie said:
@Adi
True, my wife and I have a high net worth, and we only use one card with a $20k limit. That’s all we need for everyday expenses and travel.

Everyone on this forum seems to be a millionaire who retired at 35. :smile:

Are you paying interest on your credit card balances? If so, paying those off should be a priority. If you’re not handling those bills fully, you’re not ready for a mortgage.

Ben said:
Are you paying interest on your credit card balances? If so, paying those off should be a priority. If you’re not handling those bills fully, you’re not ready for a mortgage.

Not true. Mortgage lenders care about your debt-to-income ratio. You can qualify for a mortgage with credit card debt as long as you meet their requirements.

Pick one card to focus on. Pay the minimum on the other, and throw everything you can at the first one until it’s gone. Don’t add to your balances while you do this.

If you can’t pay your cards off in full each month, how are you planning to handle a mortgage? It’s a serious commitment.

If you’ll be paying off the cards with the equity from your home sale, focus on that. Don’t open more credit lines; pay down what you already owe. Use whatever equity is left for the new house.

If you can’t pay the cards off in full, you might not be ready to buy a house. Consolidating your debt won’t improve your debt-to-income ratio, which is what lenders look at. Focus on clearing your debts before taking on a mortgage.

Mortgage lenders often require you to pay off credit cards before closing. You might as well do it now to improve your chances. I’d also call the card companies to ask why your limits keep dropping—it doesn’t make sense if your income has gone up.

@Ellis
Yeah, that’s what’s weird to me! I’m making about $20k more now than I was last year. I’ll call them and see what’s going on.

Ollie said:
@Ellis
Yeah, that’s what’s weird to me! I’m making about $20k more now than I was last year. I’ll call them and see what’s going on.

It’s all about debt-to-income ratio. Credit card debt alone doesn’t stop you from getting a mortgage as long as your DTI is low enough. Lenders won’t always require you to pay off cards before closing unless it’s a condition for approval.

Ollie said:
@Ellis
Yeah, that’s what’s weird to me! I’m making about $20k more now than I was last year. I’ll call them and see what’s going on.

Exactly, DTI is key. I’m planning to get a mortgage with almost no debt and a 50% down payment. That’s the way to go if you want to avoid issues.

Before paying anything off, talk to your lender. You might accidentally hurt your credit score by making big payments. These things can be addressed at closing if needed.

With your current score and debt, finding a lender will be tough. They’ll scrutinize everything, including your credit utilization. If possible, hold off on buying a house until you’ve paid down your cards and your score improves.