Closing Credit Cards Before Mortgage Application

Loxee

I've recently paid off several credit cards before applying for a mortgage, in order to maximise my borrowing capacity, but I have a couple of questions:

1) Should I wait until the fact is reflected on my credit report (<7 weeks lag) before applying the mortgage, or is the claim of zero debt sufficient even where the report would currently suggest otherwise? I am concerned more about the bank's affordability calculations than my credit score which is otherwise very good.

2) I want to close all but one of the cards, but should I do this now or wait until later? I appreciate that closing credit cards can temporarily lower credit score as it raises the debt to limit ratio, but by limiting total available credit it can also work favourable in the eyes of the lender.

Thanks

holly_hobby

Loxee wrote: »

I've recently paid off several credit cards before applying for a mortgage, in order to maximise my borrowing capacity, but I have a couple of questions:

1) Should I wait until the fact is reflected on my credit report (<7 weeks lag) before applying the mortgage, or is the claim of zero debt sufficient even where the report would currently suggest otherwise? I am concerned more about the bank's affordability calculations than my credit score which is otherwise very good.

Your mge app will ask which debts you have and will have paid off by completion - list the culprits, how much you have paid off and the date of payment.

Your will get your cc statements on a monthly basis - inc one for each of the cards you have redeemed, showing a nil balance just to support the statments in your mge app. (and to cover the fact that the CRAs may not have updated the acct details at the time searched by the lender)

Loxee wrote: »

2) I want to close all but one of the cards, but should I do this now or wait until later? I appreciate that closing credit cards can temporarily lower credit score as it raises the debt to limit ratio, but by limiting total available credit it can also work favourable in the eyes of the lender.

I would leave them as things are, if the amount of rolling credit you have access to (post your repayments) remains a prob for the lender, they will tell you, then you can agree to cancel cards/reduce your access to credit as and when its reqd.

Hope this helps

Holly

smacky

holly_hobby wrote: »

Your mge app will ask which debts you have and will have paid off by completion - list the culprits, how much you have paid off and the date of payment.

Your will get your cc statements on a monthly basis - inc one for each of the cards you have redeemed, showing a nil balance just to support the statments in your mge app. (and to cover the fact that the CRAs may not have updated the acct details at the time searched by the lender)



I would leave them as things are, if the amount of rolling credit you have access to (post your repayments) remains a prob for the lender, they will tell you, then you can agree to cancel cards/reduce your access to credit as and when its reqd.

Hope this helps

Holly

Hi Holly,

i guess this might benefit the OP as well. AS you said we can inform the lender whats already paid off during mortgage application. however if the paid debt isn't still reflecting on the credit report, wouldn't it be one of the reason which would affect credit score and 1 possible reason for decline as it might affect score !

thx

holly_hobby

Well you would do as suggested, and include as an appendum to your app, copies of the individual statements (which you receive on a monthly basis), showing the monies paid taking the balances down to zero.

Or if you want to apply before statements recd, ask for formal confirmation from the providers that the balance is nil.

Obviously, you wouldn't do an AIP with in this situation, you would submit a full app for UW assessment.

Hope this helps

Holly

kingstreet

smacky wrote: »

however if the paid debt isn't still reflecting on the credit report, wouldn't it be one of the reason which would affect credit score and 1 possible reason for decline as it might affect score

The mortgage application gives you the opportunity to show all your credit and to break it down into commitments which will be repaid on or before completion and those which will continue.

If you have recently paid something off, leave it in the list, but show it as something which will be paid off on or before completion.

It will only affect your score if you do not disclose it and the lender's search finds it still there. If in doubt, tell them about it even if it might be gone.

Loxee

Thanks for the replies. It seems that the application process is a bit more human than that of credit cards which is encouraging. I'm not worried about failing the credit check since I don't have any adverse history, but I'll make sure to bring along statements as proof of repayment.

kingstreet

In a worst case scenario, the mortgage offer will list the items to be repaid as a condition of the mortgage and require the solicitor to obtain evidence of repayment.