What is the thinking behind closing off paid off credit cards prior to applying for a mortgage. Is there any reasoning behind this? (Trust me, I am not in this position) I know someone that has about $35k available on 5 different cards. She thinks that it will look better if she cancels one of them before applying for her mortgage. Is there any logic behind this? Please help!
Neither closing nor reducing credit lines will do anything but reduce her scores. In particular, if she has scores that qualify her for a mortage at market rates, say 680 and up, those accounts are probably part of what is giving her those scores, and it is unlikely that the lender will view any open accounts as negative. If they were recently opened, so that the inquiry and age of the account still pull down the score some, then closing them will probably still produce little benefit, and maybe further hurt, as the inquiry will still be there, and the debt to available credit will rise. She might avoid opening new accounts within 6 months or so of when she intends to apply for a mortgage, but if she has already opened them, closing them will not undo the effect, whereas waiting another 6 months or so may allow them to have a net positive effect. To FICO, having and using credit responsibly, as shown by positive history over extended periods, is "good". Once you get to the point you have $50K available credit, and 20 years of good history, a few inquiries or new accounts will have little effect. See www.myfico.com, under their "education" section for an explanation of the factors that go into FICO scores. If she is very "sub-prime", maybe some lender might want her available credit cut back, if they view available credit as a risk, but usually the mortgage brokers that claim closing accounts will help scores don't know what they are talking about.
