does empty credit cards improve credit score

shamoo

i'm looking at applying for a mortgage next year. i currently have 3 credit cards, 1 is at £0 with a limit of £2600, 2 will be at £0 in feb and a limit of £1600 and the other will have about £6k on it. I want to cancel the cards that have £0 on them but a friend said it goes for you and improves your score if you have cards at £0 and dont spend on them. I thought that the more money against your name the less you can borrow. Can anyone clear this up for me please.

Thanks

Colin

[Deleted User]

To be of any use, cards should be used regularly and always paid off in full.

agarnett

I don't think there is a rule that can be applied solely on an existing credit use status.

My feeling (and it is only a feeling) is that if you have significant unused credit and have had it for some time showing what might present on screen as a block of green for the discoverable past on the CRA file, and no history of red or amber upsets, then it can only be a good indicator that you are in control of your credit lines, and not vice versa.

Sure, if you were looking for new credit cards then some providers might mark you down for having more than enough already (again only my feeling). But mortgages are generally for a different purpose and I would be surprised to hear a mortgage lender had reduced an offer or rejected an application in circumstances where there was a good history and no blips.

If you cancel the cards lenders can still see the history of them anyway.

More to the point however, in your case, one might question why you have one card at around £6K which may have sat around that level for some time? Maybe not. Perhaps it is a recent "0%" deal you are exploiting in some sensible way? Evenso, one might expect someone planning to apply for a (first?) mortgage to be maintaining and adding to a deposit instead of maintaining a significant credit card debt.

What's your plan for paying the £6,000 off before the rate soars? (assuming it is at a low rate or 0% currently). At a "normal" credit card interest rate, a non-reducing £6,000 debt could be incurring the best part of £100 per month in interest alone and even if it is at 0% it would take 5 years to repay the capital alone at £100 per month. It is perhaps those kind of significant sums of mandatory ongoing outlay which prospective lenders might be questioning if you arrive at their door still with the £6,000 credit card debt and presumably not much of a deposit.

Perhaps it would be more interesting to a lender to analyse your credit card history as opposed to just a snapshot of current balances ? And as I said, they can do that anyway, whether you cancel the now unused cards or not. You don't say when next year you plan to apply for a mortgage. Do you still plan to have the £6,000 credit card debt at the point you apply? Do you perhaps plan to ask them if they might consolidate it into a new mortgage? Obviously they can't unless you have a substantial deposit which dwarfs the credit card debt. But at this late stage that might beg the question as to why you still have the credit card debt in the first place! Do you have a deposit?

Assuming you've a good command of the maths and plain logic, only you know better than they whether the story stacks up well. Your friend might be on the right track given the limited question posed by your thread title, but does your overall plan actually stack up? If it does, good luck to you.

PS zx81's post is much shorter than mine and might well be more to the point!

shamoo

thanks for the reply,

The 6k is at 0% for about another year, it will be paid off before the application and yes i will have deposit. But all this will happen pretty quick from now to febuary but as we all know credit history affects the application.
I think i'll cancel the card, the less cards i have the better i feel

BrookesAndrew

shamoo wrote: »

thanks for the reply,

The 6k is at 0% for about another year, it will be paid off before the application and yes i will have deposit. But all this will happen pretty quick from now to febuary but as we all know credit history affects the application.
I think i'll cancel the card, the less cards i have the better i feel

I think that is the best thing to do and then just clear the 6k credit card before the 0 percent interest is up.

InsideInsurance

There is no straight answer as its always a balancing act between opposing forces and no one answer is "correct" as each lender will have their own views.

Lenders like to see other people trust you with credit and you pay back what you owe. They like to see that others have trusted you with decent size limits. If you have a outstanding debt then by having other lines of credit there but unused you reduce your utilization rate and so dont appear desperate/ on the borderline of going under.

On the flip side though the lender will wonder what would happen if you went out and maxed out every line of credit you have? Could you still afford to service it all?