Cancel or keep credit cards before mortgage application?

Thrugelmir

gstadt wrote: »

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.

From the text quoted I could see that this is an American site due to the spelling.

CRA scores are worthless. What matters is how the lender rates you as a potential borrower.

Thrugelmir

wrkactjob wrote: »

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.

Your cynicism shows that you are missing the wider points entirely.

gstadt

Thrugelmir wrote: »

From the text quoted I could see that this is an American site due to the spelling.

CRA scores are worthless. What matters is how the lender rates you as a potential borrower.

The credit scoring models used in the US by the banks for scoring credit card and mortgage applications are based, at least in part, on the FICO method. There's not much information available on whether the UK banks do, or not.

In my personal experience, I found it much easier to get credit, when I had credit. I suspect there comes a tipping point, when you have too many lines of credit, where that is is a judgement, I suppose.

My point is, is it better to have, say, £900 on one card with a limit of £1000? or £300 across 3 cards with £1000 limit each? In the first case, you're almost maxed out; in the second case you've had the opportunity to max out but haven't chosen to do so.

The fact we're having this debate suggests it isn't clear cut.

Yorkie1

You presume that there is a single answer to your question. There are so many variables that the answer, in many cases, is likely to be 'it depends'.

Although you've chosen not to max out credit cards in the second scenario there, the lender might not like the fact that you have easy access to more credit than it is comfortable with if your affordability is tight. In any single case, the tipping point is likely to be different to reflect an applicant's individual circumstances.

Given that lenders do not publish their precise criteria for each different situation, any replies on here are only best guesses rather than concrete; and you're likely to get frustrated if you seek a concrete answer.