How Holiday Shopping Can Help You With Home Shopping

— -- When holiday shopping heats up, home shopping cools down. December is consistently one of the slowest home sales months of the year, according to real estate website Zillow.com. It’s almost as if consumers don’t have enough mental bandwidth to focus on both at the same time.

But if you hope to buy a house in the spring, you should think about that while you buy gifts in the winter. Why? Because how you use credit now could impact your credit score and your ability to land a loan then.

“If consumers have the option, they should shop smarter and use credit a little more wisely in order to set themselves up for success come home-buying season," said David Norris, president of LoanDepot.com.

Loan Depot is one of the largest non-bank mortgage lenders, so it should know. Company officials say applicants need a credit score of at least 640 to get a mortgage for a $217,000 house, the median home price in America right now. A higher credit score is even better. In mortgage software company Ellie Mae’s most recent report, it said the average FICO score for people approved for mortgages was 724.

So how can you raise your score? It sounds strange but using credit cards instead of cash this holiday season can help your home buying cause next year. That’s because credit scores are based on having and using credit wisely. Here are several dos and don'ts so your holiday shopping now can lead to successful home shopping later.

DO:

• Do: Use credit cards. Shopping with credit cards this holiday season will help raise your credit score as long as you use them wisely. Besides, credit cards can be helpful for the extended warranties some offer or if you need to dispute a charge.

• Do: Use a cash-back card. If you have a choice of credit cards this holiday season, why not use one that puts cash back in your pocket? That will come in handy for closing costs, your down payment or furnishings for your new home.

• Do: Ask for a higher credit limit. But don’t use it! An important factor in your credit score is to have a lot of credit but not use all of it. Ideally, you will not use more than 10 percent of the credit available to you on your cards.

DON’T:

• Don’t: Open store cards: Opening brand new accounts can hurt your credit score, so don’t do it just for the discount. When I experimented with a MyFICO.com calculator, opening a new card lowered my score 10 points. If you were right on the border between two different FICO score tiers, that ten points could really cost you when you apply for a mortgage.

• Don’t: Carry a balance. Only spend what you can afford to pay off the same month. Credit scoring models count it against you when you carry a balance.

• Don’t: Go shopping again until your mortgage closes. Once you apply for a mortgage, don’t start shopping for furnishings for the new pad. Many lenders re-check your credit before closing to make sure everything is in order. A shopping spree can knock 40 or 50 points off your score.

Opinions expressed in this column are solely those of the author.

Elisabeth Leamy is a 20-year consumer advocate for programs such as "Good Morning America" and "The Dr. Oz Show." She is the author of Save BIG and The Savvy Consumer. Elisabeth is also a professional speaker, delivering talks nationwide on saving money, media relations, and career success. Elisabeth receives her best story tips from readers, so please connect with her via Facebook, Twitter or her website, to share your ideas.