Credit Card Hurting Your Mortgage Chances?

Your credit cards may be hindering your chances of getting a mortgage. Over the past two years, banks have cut back people's credit limits on their credit cards. Now, people are finding that their credit scores have dropped because of these bank actions. Even though they pay their card on time every month, their credit scores may have dropped 50 to 100 points.

Why are credit scores getting slammed? A key component of your credit score is credit card utilization. You can calculate your utilization by totaling all outstanding charges and then dividing that number by the total of your credit limits. For example, if you have $5,000 in outstanding charges on two credit cards with a credit limit of $5,000 on each card for a total of $10,000, then your credit card utilization is 50 percent ($5,000/$10,000 = .50).

If you're like most people you probably had much higher credit limits prior to 2008 when credit was flowing freely. You may have had a credit limit of $10,000 or $15,000 per card rather than the current limit of $5,000. In that case your credit utilization ratio would have been 25 percent ($5,000/$20,000 = .25) or 17 percent ($5,000/$30,000 = .17).