While the actual credit score has a big impact on a loan approval, it’s not the only component of the credit scenario that underwriters consider for a mortgage approval.
Since loan programs, individual lenders and mortgage insurance companies all have their own credit report restrictions, it’s difficult to define a standard Rule-of-Thumb to follow.
However, the number of “Open and Active Trade Lines” seems to be the common denominator in most approvals.
A trade line is basically a credit card, installment loan or other credit liability that is reported to the credit bureaus and displayed on a credit report.
Credit Trade Line / Approval Bullets:
- Banks usually won’t count a trade line that is less than 12 months old.
- The minimum number of trade lines most lenders find acceptable is 4 open and active trade lines.
- Lenders like to see at least one credit line of $5,000, or all credit lines to total $1,000 or more.
Exceptions to Trade Line Rules:
Interestingly enough, a recent list of Mortgage Insurance requirements included a favorable trade line requirement, which read:
Min 3 trade lines @ 12 mo reporting. Cannot be ‘authorized user’
Basically, this means as long as the lender, and the loan program allow for less than 4 trade lines, this mortgage insurance company will accept only 3 trade lines that are in the borrower’s name.
Another exception to this rule is if you have no FICO score, and no negative trade lines.
In this case you may qualify for an “alternative credit” loan. The most common loan of this type is insured by FHA, but there are select programs that are usually targeted to assist people whose culture does not trust or use banks.
Borrowers applying for a non-traditional credit loan will still need to prove they have successfully paid their bills on time for 12 months by clearly documenting at least four creditors. A verification of rent from a property management company, power, utilities, cell phone… are alternative sources of credit that can be used.
*A letter from a landlord or creditor stating that the bills were paid on time is not acceptable forms of proof. Lenders will need canceled checks and / or copies of bank statements to start out with.
Since not all companies report to credit bureaus, it’s possible to get a complimentary credit report at AnnualCreditReport.com to verify your total reported trade lines.
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FAQs
Conventional loans require at least three tradelines (any combination of credit cards, student loans, car loans, and so on) that have been active within the past 12-24 months. FHA loans require two tradelines. It's fine to have more, but if you have fewer, you won't qualify for a mortgage.
How many lines of credit should you have? ›
If your goal is to get or maintain a good credit score, two to three credit card accounts, in addition to other types of credit, are generally recommended. This combination may help you improve your credit mix. Lenders and creditors like to see a wide variety of credit types on your credit report.
How many lines of credit can I open at once? ›
Just as there's no fixed rule about how many lines of credit are ideal, there's no rule about how many lines of credit are too many for one person to have. It all depends on your situation. If you're confident that you'll be able to make the payments, opening one or more may be a good idea.
How many tradelines are needed for a conventional loan? ›
Credit Profile Requirements. Having a good credit score is incredibly important — but so is the way you built it. A rough rule of thumb: You will need 3 open tradelines to qualify for a conventional loan.
What is a normal credit line limit? ›
A single credit card can have a credit limit of anywhere from $500 to $10,000, depending on various factors like the type of card, your credit score and more. According to Experian™, one of the three main credit bureaus, the average total credit limit across multiple cards was about $30,000 in 2021.
Does having a large line of credit affect mortgage approval? ›
Along with many other types of debt, a line of credit can influence the mortgage approval process. In certain situations, having or taking out a line of credit may make approval much more difficult. In others, the line of credit may not be a major obstacle to approval.
Can you have too many credit lines? ›
Key Takeaways
Having too many open credit lines, even if you're not using them, can hurt your credit score.
How many hard inquiries are too many? ›
Since hard inquiries affect your credit score and what is found may even affect approval, you might be wondering: How many inquiries is too many? The answer differs from lender to lender, but most consider six total inquiries on a report at one time to be too many to gain approval for an additional credit card or loan.
Is it good to have open lines of credit? ›
There are a few benefits that come with opening lines of credit—from helping you refinance your mortgage to improving your credit utilization ratio. However, it may not be necessarily what you need financially. For example, you may be in need of a loan that you can have more time to pay off.
How long should you wait between opening lines of credit? ›
It's generally best to wait six months between credit card applications. That will prevent hard inquiries from making a significant negative impact on your credit score.
However, multiple accounts may be difficult to track, resulting in missed payments that lower your credit score. You must decide what you can manage and what will make you appear most desirable. Having too many cards with a zero balance will not improve your credit score. In fact, it can actually hurt it.
Is it bad to have a lot of credit cards with low balances? ›
Keeping a low credit utilization ratio is good, but having too many credit cards with zero balance may negatively impact your credit score. If your credit cards have zero balance for several years due to inactivity, your credit card issuer might stop sending account updates to credit bureaus.
What is the minimum number of tradelines for FHA? ›
Most lenders will have a 2 tradeline requirement minimum to qualify for an FHA Loan.
How many open lines of credit do I need to buy a house? ›
Checking Your Tradelines
If you are looking for a loan from the Federal Housing Authority (FHA), you will need at least two open tradelines in your credit mix. Conventional loans typically necessitate having at least three tradelines.
What does too many open tradelines mean? ›
Effect of tradelines on your credit
Ideally, you should open only as many tradelines as you need and can maintain properly – if there are too few tradelines on your report, lenders may feel you lack sufficient credit history. If there are too many, it can mean that you may have bitten off more than you can chew.
Do you need 2 lines of credit to buy a house? ›
Checking Your Tradelines
If you are looking for a loan from the Federal Housing Authority (FHA), you will need at least two open tradelines in your credit mix. Conventional loans typically necessitate having at least three tradelines.
What credit score is needed to buy a $300K house? ›
What credit score is needed to buy a $300K house? The required credit score to buy a $300K house typically ranges from 580 to 720 or higher, depending on the type of loan. For an FHA loan, the minimum credit score is usually around 580.
How much line of credit can I get on my house? ›
The cash you can get out of your home depends on the amount of equity you have in your home, as well as your lender's guidelines. A typical HELOC lender will allow you to access 80% of the amount of equity you have in your home but some lenders might go up to 90%, though usually at a higher interest rate.
How many tradelines are needed for FHA? ›
Most lenders will have a 2 tradeline requirement minimum to qualify for an FHA Loan.
While the actual credit score has a big impact on a loan approval, it’s not the only component of the credit scenario that underwriters consider for a mortgage approval.