Can I Use My Credit Card After Closing on a House?

After closing on a house, new homeowners often wonder about the continued impact of credit cards on their financial health. Understanding how credit cards fit into your new financial landscape is an important aspect of responsible homeownership.

Credit Score After Closing

Your credit score continues to be influenced by your financial behavior after closing. A mortgage application involves a hard inquiry, which can cause a temporary dip in your credit score. Once the mortgage is finalized, your score might experience a further dip as a large new debt appears on your report. This initial decrease generally appears within one to two months after closing when the lender reports your first payment.

Credit scores, such as FICO scores, are calculated based on several factors: payment history (35%), amounts owed (30%), length of credit history (15%), new credit (10%), and credit mix (10%). Consistently making on-time mortgage payments becomes a significant positive factor, demonstrating your ability to manage a substantial debt. This responsible payment behavior helps your score recover and improve over time, often reaching its previous level within approximately five months, assuming other credit habits remain strong. Maintaining a healthy credit score remains valuable for any future financial needs.

Managing Your Credit Cards

Effective credit card management is an ongoing process for new homeowners navigating increased financial responsibilities. A key aspect of maintaining a healthy credit profile involves keeping your credit utilization ratio low. This ratio compares your outstanding credit card balances to your total available credit, and experts recommend keeping it below 30% for optimal credit health.

Consistently making timely payments on all your credit accounts is another important practice. Payment history is the most significant factor in credit score calculations. Missing a payment by 30 days or more can significantly harm your score and remain on your credit report for up to seven years. Paying bills on time helps avoid late fees, potential penalty interest rates, and demonstrates financial reliability to lenders. Understanding your debt-to-income (DTI) ratio, which compares your monthly debt payments to your gross monthly income, is also beneficial for personal financial health, with many lenders preferring a DTI ratio of no more than 36%.

Using Credit for Home Expenses

Credit cards can be a convenient tool for managing various home-related expenses, provided they are used prudently. New homeowners often face costs for furnishings, appliances, and unexpected repairs. Credit cards can facilitate these purchases, but it is important to budget carefully.

It is common to budget for annual home maintenance and repairs, with financial experts suggesting setting aside 1% to 4% of your home’s value each year. Using credit cards for these costs means being mindful of interest rates, which can range significantly, with average annual percentage rates (APRs) for credit cards often around 20% to 25%. To avoid accruing high interest charges, aim to pay off credit card balances in full each month, especially for larger home-related purchases.