Cancel or keep credit cards before mortgage application?

claire_n037

I currently have 4 different credit cards, 3 that have peen paid off in full.

I am going to be applying for a mortgage soon and am just wondering if I am better to cancel the 0 balance cards or keep them.

Will it affect my credit score as at the moment I am using a low percentage of my available credit which is a positive on my score.

Thank you

Thrugelmir

In general its common sense to close down any unwanted/unused credit lines. As the question any financial institution will ask is why have you got them.

The way lenders will score you will be based on data from your past 6 years history not just your current position.

gstadt

Doesn't the un-utilised credit affect automated credit scoring in a positive way, though? Showing that even though you have credit available you don't use it?

Thought this is the way credit-scoring based on FICO works?

Thrugelmir

Having unused facilities merely shows that you can go out and spend spend spend. In no way does it suggest that that you are responsible with money.

Presenting oneself in the best possible manner can only be positive. When it comes to mortgage applications.

gstadt

I thought the credit score models used by the banks are based on FICO, where unused credit is a positive factor as it shows discipline.

I suppose if its manual underwriting, the underwriter may take a similar view to yours.

CLAPTON

probably unwise the change any of your financial products shortly before making a mortgage application

drunkenmonkey

As part of our upcoming mortgage application, I've paid off all my credit cards in full and closed down the 2 most recent ones, keeping the oldest open, on this one I've been making one or two small purchases and paying off in full each month. I've seen my credit score (yes I know it's just an arbitrary number! ) shoot up since I did this. Low utilisation/good ratio and a higher number of settled accounts seem to be the main reasons.

Thrugelmir

gstadt wrote: »

where unused credit is a positive factor as it shows discipline.

So by having 4 credit cards it demonstrates restraint? And lenders should view this positively.

Interesting perspective.

gstadt

Thrugelmir wrote: »

So by having 4 credit cards it demonstrates restraint? And lenders should view this positively.

Interesting perspective.

from Investopedia:

"Credit issuers like to see a credit utilization rate of approximately 35% or less. Therefore, it is sometimes not in your favor to close credit cards without balances, or reduce your credit card limit."

I was interested to see how credit scoring models are built. There's a fair bit of information on how FICO scores are generated on the internet, advocating not closing accounts. I suppose you have to offset this against having a large number of accounts.

claire_n037

CLAPTON wrote: »

probably unwise the change any of your financial products shortly before making a mortgage application

I have heard not to apply for any more? Buy paying off debt has to be positive doesn't it?

wrkactjob

Thrugelmir wrote: »

...Presenting oneself in the best possible manner can only be positive. When it comes to mortgage applications.

Yeah right and don't forget to clean your shoes and get a haircut....though don't pay for your haircut as this could be seen as a regular expense which the mortgage company will have to take into account when assessing your ability to pay.

That a mortgage company could be so nervous whether to lend a 25 year secured loan because you have or have not closed a credit card is frankly ridiculous.