Not using your credit card enough sounds like an odd reason to have a mortgage application denied, but it’s one of the ways that applying for a home loan can be derailed by factors you may not have thought of.
Credit card debt can help establish a credit history—a good history if you have a record of paying it off on time. Late payments can hurt a mortgage application and a poor credit history can be worse than having no credit history at all. Without a substantial credit history, however, home lenders may be unlikely to approve a mortgage application.
Here are some other things that can lead to a mortgage application rejection:
New Credit Opened Recently
Opening a new credit card or two a month or so before applying for a mortgage can lower your credit score by five points. That shouldn’t hurt your mortgage application if you have good credit, but if you’re on the cusp of qualifying, it could be enough to have your loan application rejected. Wait until after you’ve moved into your new home before applying for more credit.
Unpaid Medical Bill
Not paying a medical bill can lead to your doctor’s office or hospital asking a debt collections agency to try to get the money. The debt collector could notify the credit bureaus that you’re overdue, which could put a red flag on a mortgage application.
At least try to work with the medical provider to set up a payment plan. This will show a mortgage lender that you’re serious about repaying your debt and are working on it, and could be the start to getting your mortgage application approved.
Getting a new job is a good thing, but changing jobs just before applying for a mortgage can show banks that you don’t have a consistent income history. Lenders want to see at least two solid and consistent years of income history. Changing jobs on your own is normally a good thing but, in this case, you may want to wait until after your home loan is approved and you’ve closed on a house.
The lender may give you some leeway, however, if you were laid off and didn’t have any control over your employment.
Exaggerating your income on a mortgage application may seem like a minor offense; however, lying about your income or anything else—such as trying to hide debt or a down payment source—is mortgage fraud. That’s reason enough for automatic denial.