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Personal Finances / Credit Cards and Consumer Debt


Subject:  Re: Some house cleaning questions Date:  1/2/2013  5:40 PM
Author:  aj485 Number:  306611 of 312987

I want to close unnecessary accounts so I don't look scary to a potential lender for a mortgage in the next 12-24 months. No rush, but also no reason to have all of these when I only use one of them.

Yeah, actually there is a reason to keep them open. What looks scarier to mortgage lenders are people who are using a large part of their credit on a regular basis. If the mortgage lender wants you to close some of your accounts because you have 'too much' open credit, they will tell you then.

To get the best credit score in order to receive the best mortgage rates, you need to keep enough of the open credit lines open so that your maximum monthly spending is less than 10% (5% is better) of the total credit limit. For instance, if the maximum amount that you forsee spending (including wedding/honeymoon spending, etc.)in a month is $4,000, then you would need to keep at least $40k in credit lines open, and $80k would be better.

Closing the store cards probably wouldn't hurt your credit score, and may help it, because store cards can be scored as 'consumer finance', which is considered riskier in some credit score algorithms. But I would not recommend closing any of your general use (Visa, MC, AmEx, Discover) cards.

Additionally, since your 'daily use' card is one of the cards apparently doesn't report a credit limit, for 2 - 3 months before you go to apply for the mortgage, until after you close on the house, you should consider using a different card for much/all of your daily use. This is because for cards that don't report a limit, credit scoring algorithms often look at the maximum spend in the last 1 - 2 years, and use that as a proxy for the credit limit. So even if you are only spending your typical amount each month, you could show a very high utiliztion on that particular card, which could drop your credit score significantly.

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