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Mortgage Qualifying Improved With Credit Card Change

It’s being widely reported that the Bank of America has decided to eliminate overdraft fees for debit cards. This is a mortgage issue, a consumer issue and a common sense issue that should concern anyone who wishes to finance or refinance a home.

New rules from the Federal Reserve will make it more difficult for lenders to charge overdraft fees — you’ll now have to opt-in to pay over-the-limit fees. This means lenders will have to get your agreement to charge you each time you overdraw your account.

OR

You can elect not to opt-in in which case you will simply not be able to borrow above your credit limit. This means if you go to a store, buy stuff, and don’t have enough credit you will be unable to complete your purchase.

This, after all, is the way it should be. If you have $20 in your wallet you can’t buy things worth $30.


Some lenders charge multiple over-draft fees and some charge fees which are many times the value of the overcharge — say a $39 fee for a $5 overcharge, or a string of four fees per day for each day the account is overdrawn.

The Bank of America has elected to drop the overdraft fees entirely and to simply say that your credit limit is your credit limit. Fair enough and good for BOA.

Mortgage Applications

The implications for mortgage applications are important. If there’s no ability to overdraw your credit card account you cannot face overdraft fees. No less important, you cannot have a negative item on credit reports as a result of an over-draft — and that means credit scores for many people might actually rise.

Two cautions: First, check your credit limit each month to assure that you will not be embarrassed at the check-out counter or in a restaurant.

Second, the Bank of America decision is a voluntary move — one that could be reversed in the future. Other lenders still seek to have you pay through the nose. For this reason it’s important to assure clarity in the credit system and that can be done most effectively by outlawing overdraft fees altogether.

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Posted in: Mortgages

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