Close Credit Cards Before Applying for a Mortgage?
By: Dan Lewis | Posted: 27th March 2007
Only in America could you have something like credit cards. Lenders more or less throw money at you by offering you credit cards, but can you have too many when it comes time to apply for a home loan?
Credit cards are so numerous, it is rather stunning when you think about it. Once you hit the age of 18, and sometimes even earlier, you are inundated with offers in the mail, online and, if you are really lucky, from cold calls. Most people take advantage of these offers from time to time and end up with more than one credit card.
Once you make the decision to buy a home, you undoubtedly will realize your credit report is going to play a significant factor in getting the loan for the home of your dreams. So, what about your credit cards? Well, they can impact you in two ways. First, your history of making payments is taken into account. If you have always paid more than the minimum balance and made payments on time, it is a positive on your credit report. If you have missed payments, well, it is not so positive.
Another area where credit cards come in to play is the total balance you are carrying on the cards. One of the factors considered in the mortgage is your total debt. If you have maxed out your credit cards, that is not a good sign. Most lenders will be hesitant to provide you with a loan unless you have a significant income or a lot of high value assets.
Before applying for a loan, many people consider cancelling credit cards. On its face, this may seem like a good move. In truth, it is not. It can actually hurt your credit score! A better approach is to pay down credit cards, but leave them open. A bank would prefer to see that you have significant credit and have not used it, to wit, you are a disciplined borrower.
Ah, but what about a poor payment record with credit cards? If you close the card, won’t the history of missed payments be taken off your credit report? Unfortunately, the answer is that it will not. Just because you close a credit card, it does not disappear from your credit report. It was a debt you carried and finally paid. This makes it part of your permanent record. Well, not permanent. It can be taken off after seven years, but that is long time to wait to apply for a mortgage!
Dan Lewis is with Great Western Mortgage - providing California home loans.
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Tags: credit card, money, truth, two ways, mail, wit, dreams, mortgage, lenders, credit score, credit report, home loan, loan credit, cold calls, minimum balance