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Is it best to close out credit cards before applying for a home mortgage? |
Is it best to close out credit cards before applying for a home mortgage? Yes. However, if you have more than 4 credit cards and you pay them off, it does not necessarily help you when you purchase a home. People do not realize that the more credit cards they have will cause a lender to not provide the best possible interest rate when buying a home, even if the balance owed is zero. Some lenders will still consider the card holder a "credit risk" because of the number of cards they have regarless of balanced owed on the cards. By paying off the credit cards, it will increase your credit score. The best thing to do is cancel the cards you don't need. Keep at least one major card, such as Visa, Mastercard, Discover, etc., wait 1 year and then try buying a house. Always check your credit score to determine if your credit score allows you to negoitate for a good interest rate. Do not go for "interest only" loans because the lender will require you to pay the interest first and no money will be credited to the prinicipal until the interest is paid in full. Seek out an honest financial advisor, if you can find one, to give you the upfront details before you buy your home. Yes, any that you're not going to use because it actually works against you. They take into account how much available credit you have and factor in what the impact would be on your ability to repay the mortgage. So, lose any that you don't absolutely need and drop the max limits on those that have just gotten ridiculous. I wouldn't. As long as the cards have a zero balance they will look good to a mortgage company. Also if you leave the line of credit open and it shows as R1 which means paid and up to date it actually improves you credit rating. Plus you might need some credit after you move in to your house, you never know. Maybe the washer or dryer stops working. A BANK WILL TELL YOU IF "TOO MANY CREDIT CARDS " IS THE PROBLEM WHEN YOU APPLY FOR SUCH A LOAN . MY BANK TOLD ME I HAD TOO MANY CREDIT CARDS WHEN I APPLIED FOR A LOAN FOR MY HOME .......EVEN THOUGH SOME HAD A " ZERO " BALANCE. BANKS ARE AFRAID THAT YOU WILL GET THE LOAN & THEN GO INTO DEBT WITH THE CARDS ....THUS MISSING A MONTHLY HOME PAYMENT NOW & AGAIN .THEY'LL SPEAK UP , BELIEVE ME In general "yes" but you should not worry about closing all of them> It is perfectly OK to leave 2-3 cards as long as there are not major derrogatories/bad pmt history on file and you have been up-to-date with your payments. This defines your credit score which I would assume will be grounds for negotiation for your interest rate in the States. Not so in Canada. In addition, the cards will be factored in in calculating your total debt servicing ratio whereby in most cases, although paid, the cards credit limit will be factored in as a "potential draw" on your part. so, keep that in mind and good luck. I would not worry about it too much... |
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