Jacksonville Real Estate

CREDIT CARDS

Homebuyers uneasy about their credit scores sometimes cancel credit cards before applying for their mortgage. Is that a good idea?

No, say credit specialists. Such a move drives up the amount of their debt as a percentage of how much credit they have available to them, which created the widely used FICO credit scoring system.

Here’s why canceling cards can hurt a mortgage applicant:

As an example let’s say buyer, Mr. Jones, has five credit cards and a $10,000 limit on each of them, giving him $50,000 in available credit. Let’s suppose Mr. Jones owes $25,000 total. That means he’s using 50 percent of his available credit. If he cancels one credit card on which he owes nothing, he reduces his credit limit to $40,000 without reducing his debt. At the same time, having one fewer card means he’s using 62.5 percent of his available credit.

The bottom line: by canceling a card, Mr. Jones has given himself less wiggle room and cuts his credit score. So the bottom line is to keep all credit cards or work on getting your score higher by planning at least two years in advance before purchasing.

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