|
|
|
Christina,
Thanks for writing!
That's a great question!
I would have to say that having fewer credit cards with higher balances is going to be "better" in most cases. The reason is because with fewer cards you have a lower amount of available credit and that is certainly a consideration when banks review your credit report, or as I like to call it, your "credit résumé."
Let's look at a few numbers. Say you had three credit cards. Each has a $5,000 limit and a balance of $1,000. At this point you have a $15,000 limit and $3,000 debt. Many mortgage lenders may view that as a possible unsecured debt of $15,000.
By consolidating all that to one card you'd have a $3,000 balance with a $5,000 limit. That's certainly looks more favorably to lenders.
Since you have many credit cards you also have some options to get some great rates! When deciding which credit cards to use to consolidate your debts, be sure to give them a call. Tell them, "Here's the deal. I'm consolidating all my debts to the fewest cards possible and closing my other accounts. If you want to keep making money then you'll need to give me a great rate or else I'm gone!" If the first rep can't do that then ask to speak to their supervisor.
In my opinion, a good rate is 4.9% fixed until it's paid off, 0% for one year, or a 9.99% fixed rate for life on all purchases and charges. Your options will depend on your history with each credit card and their thirst for profitable customers.
When we purchased our house we had 24 credit cards with a total of $24,000 and still got approved for the mortgage! They didn't say a word. The reason is because we've never had a late payment. Paying on time is one of the most critical keys to getting the best deals and having the most credit options.
One more tip. This is the exception for keeping your cash! Don't reduce your debts by paying them off with cash because you'll need that cash for the down payment and closing costs. After you're in the new house then pay off the credit cards with any remaining cash.
Good luck and please let me know what happens!
Regards,
Scott
About The Author: Scott Bilker is the author of the best-selling book "Credit Card and Debt Management." He is also the Editor and publisher of the FREE DebtSmart® E-mail Newsletter (http://www.debtsmart.com). Sign up today!
By
12/10/2011
Also call a bank! The mortgage broker can go over your income and debt with you and advise you on what route to go. Without you actually applying, you won't have to give social security and number and stuff. Just explain what you've explained here in your post. They are pretty willing to help:)
By
12/10/2011
A friend of mine was a lender for Capital One. She personally reviewed every applicants credit. She explained to me what they look at. It is both. If you have 3 cards with a 10,000 limit on each that negatively impacts your credit rating because you could get in to trouble.
However! You should never have more than 40% of the max on your cards. Ie 40 on a 100 dollar card. Both of these will bring your rating down. Consistent payments are good! On time is the only way to go! I would close the accounts you've had the least amount of time keeping two or three with less than 40% charged. They would rated see balances on those cards with consistent payments than no charges at all.
Finally let me give you the formula they use. Take your weekly income multiply by 52 then divide by twelve. Next take the monthly bill of each line of credit ( car notes credit cards etc. ) add those up. For example car note $350 a month, card 1- $125 a month, card 2- $100 a month= $575. That $575 should not be higher than 35% of your monthly income. That is your debt to income ratio. Good luck!
By
12/10/2011
Suze Orman says don't cancel credit cards. The fact that you have them with no balance can work in your favor as far as ratio of debt to credit. I don't know how soon you plan to buy a home but if I were you I would work on paying them down before applying for a loan.
If you have many credit cards even with small balances on each, it shows you really do not understand how to use them. Ideally they should be used and the balance paid at the end of every month.
If you need to make a large purchase and do not want to deplete your bank account you could use the card then make large payments for a short while. But if you are using your card to buy things you want and can't afford your best bet is to get yourself in order and learn to manage your finances before you buy a house.
By Maggie (Guest Post)
05/29/2006
I have to disagree with you, Scott. I'm going with Suze Orman on this one: Lenders (and credit scorers) look at your total debt-to-limit (DTL) ratio. So, using your example, if you consolidate the $3K to the one card with a $5K limit and close the others down, you are at a 60% DTL ratio-- definitely high. If you kept the $3K to $15K ratio (20%) you'd be better off. Better to have more cards (not too many, as too much available credit also hurts) and a lower DTL ratio--- Definitely below 25-30% DTL is best. ALSO, lenders look for a long credit history--- so keep those cards open that you've had the longest. And on-time payment history is probably the #1 way to get your score up. If you transfer debt around without paying it down, lenders will see that as as a negative. Ditto for opening up new accounts.
Get a FREE credit report --- www.annualcreditreport.com is the ONLY FREE site-- there are many fakes out there that will SAY they're free, but they're not -- BE CAREFUL!!!!
Also, it's worth it to pull your FICO score before applying for any big loan or mortgage-- you can do it instantly online: www.myfico.com, they charge about $7-9, but it's the one most lenders look at. Most lenders consider a FICO of 720+ to be very good, while 755-760+ will definitely get you the best rates. IMHO, you don't need to pay for more than one score from different companies; they all use different numerical scales (confusing!) and it's based upon the same info (your credit report) anyway.
Good luck in your homebuying!
Maggie
By PSellers (Guest Post)
07/07/2004
Also, don't just quit charging on your cards and assume that no use is standing you in good stead. You still have the credit limits available like a previous poster said in terms of potential unsecured credit. You need to actually cut them in half and send the cards back with a cancellation note.
By (Guest Post)
06/21/2004
We just went through a similar situation and here's the advice we got from several lending institutions:
Do some consolidation if you can improve your interest rates but do not max out any cards. One maxed out card lowers your credit score even if you have plenty of available credit.
Cancel a few cards you're pretty sure you won't ever want to use again, but not everything you manage to transfer the balance off of. Make sure to keep some of your long standing accounts open. Banks like to see open accounts with a long history of on time payments. Also, you want to keep your options open for future transfers.
The number one thing you should do is pull your own credit report and chech for errors or omissions of "good" credit. We found that our nearly paid off car loan was missing!
Like ThriftyFun on Facebook
