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Rule-of-Thumb Regarding The Number Of Credit Lines To Have Open?

Is There A Rule-of-Thumb Regarding The Number Of Credit Lines To Have Open?

Is There A Rule-of-Thumb Regarding The Number Of Credit Lines To Have Open? - Mike P. Johnson Mortgage Banker


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 . It’s difficult to narrow it down to something as simple as a Rule-of-Thumb, but the number of “Open and Active Credit Lines ” seems to be the common denominator in most approvals.  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. 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 credit line that is less than 12 months old.
  • The minimum number of credit 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.