Effect of closing credit accounts on credit file

shell88

Also posted on the mortgage forum as I'm not sure where this should be...

I will be applying for a mortgage next April/May with my partner. I have paid off my credit card and catalogue account, however I have read that if I close these it will have a negative affect on my credit file, is this correct? I have no other outstanding debt.

I know that the credit score doesn't mean anything, but it must be detrimental to mortgage application if it reduces when you close accounts?

My thinking is that as I have had a not so good credit history, applying with no debts would be more favourable?

Any help would be much appreciated!

Thanks

tiredoflife

I think if you keep your oldest credit account open its a good idea as it shows you have credit history.
I'm sure someone with more knowledge will come along soon and advise...

[Deleted User]

You should be looking to continuously demonstrate good credit management.

Using a credit card, paying off in full each month, is the easiest way of doing this.

JimmyTheWig

Three things that look bad on a credit report...
1. Too much credit utilisation. E.g. £900 balance on your only credit card with £1000 limit gives a credit utilisation of 90%.
2. Too much available credit for your income. E.g. Three credit cards each with a £10,000 limit and annual salary of £20,000 gives a available credit/income of 150%.
3. Not enough access to credit. E.g. a single credit card, even with zero balance, with limit of £350.

Closing the accounts will be good for some of these measures, but bad for others. It's about getting the right balance. But no-one actually knows what the right balance is.
Well done paying the debts off, though. On any measure that's got to help.

Anthorn

shell88 wrote: »

Also posted on the mortgage forum as I'm not sure where this should be...

I will be applying for a mortgage next April/May with my partner. I have paid off my credit card and catalogue account, however I have read that if I close these it will have a negative affect on my credit file, is this correct? I have no other outstanding debt.

I know that the credit score doesn't mean anything, but it must be detrimental to mortgage application if it reduces when you close accounts?

My thinking is that as I have had a not so good credit history, applying with no debts would be more favourable?

Any help would be much appreciated!

Thanks

In theory credit accounts have a history and that history demonstrates that you are a reliable customer. In practise at least for me the effect of closing accounts has been negligible. My credit score on two sites dropped by 100 points when I closed my oldest account of 30 years. But there was no effect at all on credit applications. Nevertheless you will be wise to keep a few older accounts due to their history until you build up a history on newer accounts.

Incidentally, paying off the full balance every month does not demonstrate your ability to handle credit because there is typically no roll-over balance. It just shows you can pay off the full balance every month and you're avoiding credit!

JimmyTheWig

Anthorn wrote: »

Incidentally, paying off the full balance every month does not demonstrate your ability to handle credit because there is typically no roll-over balance. It just shows you can pay off the full balance every month and you're avoiding credit!

As long as you wait until the statement to pay it off then it will show you using credit.

shortcrust

I paid off and closed five stoozing credit cards about four months before being approved for a mortgage. I just kept the two that I use for cashback, neither of them particularly old. For what it's worth, my scores went up after closing the accounts.

Anthorn

JimmyTheWig wrote: »

As long as you wait until the statement to pay it off then it will show you using credit.

Not necessarily: For that to happen the statement day would have to be the same as the payment due day which in turn is the same as the day the lender reports to the CRA. Unlikely on each count. In general the lender reports to the CRA after the payment due date so the balance is more likely to be always shown as nil if it has been cleared and there are no recent transactions.

shortcrust

Don't you handle credit every time you make a purchase on a credit card? After all, you walk out of shop with a load of stuff you haven't paid for. Just because you pay it off with one lump sum rather than over time doesn't mean you haven't borrowed.

redux

Anthorn wrote: »

Not necessarily: For that to happen the statement day would have to be the same as the payment due day which in turn is the same as the day the lender reports to the CRA. Unlikely on each count. In general the lender reports to the CRA after the payment due date so the balance is more likely to be always shown as nil if it has been cleared and there are no recent transactions.

The balance won't necessarily fall to zero on the payment date, as there may have been further spending in the three weeks or so since the statement.

For instance, if someone regularly spends about £300 a month and always pays in full, the account balance will probably fluctuate between about £220 and £550.

djadry

I have a similar question in relation to this, I've got a Littlewoods account and had it since 2007. I've only used the account a few times in the last few years and paid it off, I'm likely not to use it again. I have a credit limit of £4600 if I close the account will it have a negative effect on my report? Thanks in advance