Question: I’m moving into a new house I just bought, and just want to dispel of some information about applying for a home loan. Some of the stuff I’ve read by “experts” in financial magazines such as Money Magazine and Kiplingers, I now consider rubbish and urban myth. I’ll just cover here what I found was wrong, or may be wrong in some situations. For the record, I applied for a home loan with 20%+ down (to avoid mortgage insurance) with a mortgage lender owned by a major U.S. bank with branches in the West and Mid-West.
The main myth I wanted to dispel is to close all uneeded unsecured bank credit lines, such as MasterCards and Visas, since mortgage lenders will count this against you as a debt, even if you owe no money. I’ve read stuff like this, ad nauseum, and is the farthest from the truth. I am a person a average income, above- average savings, but also have about 400 credit cards, of which about 20 are MasterCards and Visas (I did not make a typo here!). Many of my MasterCard/Visa credit lines are in the $10,000 range (creditors keep raising my limits). I do have a lot of credit lines, but owe very little money (about $500 total on them). I’ve had people tell me I could never get a home loan because of this. Nonsense! I met with my mortgage lender, and was very candid about this (that I used to collect credit cards). They weren’t the least bit concerned. He runs my credit report (their printer runs out of paper printing it) and saw how excellent my credit was. He was also very impressed with my ISAAC score (a statistical score that is printed on their credit reports). Mine was very high. Not only could they care less about all my open credit lines, they wanted me to apply for their Visa card (automatically approved with a mortgage). The person I applied with seemed a bit upset when I refused their Visa card, since I told him I have enough Visas. But he kept insisting I apply and said just do what I do with all my other cards (not use them). Probably he got some sort of added bonus for every Visa account he also opens.
But the fact is, having all these open accounts did not hurt me a bit, and actually helped me. Reason for this is it showed an enormous amount of credit responsibility on my part, and that is why credit card issuers also kept raising my credit lines that I never, or hardly, use.
In any event, if others are thinking about buying a home, now may be a good time. Interest rates are low, and the housing market seems to be on the rebound. And if you are in my situation (have enough credit cards to sink a ship) don’t be concerned if you have been very responsible with them.
Answer: I noticed some accounts that I had cancelled showed up on my credit report when I applied for a home loan recently. I mentioned this and asked if I should bring in the cancellation letters. I was told that not only did available credit not hurt me; it helps! I remarked that this seemed backward to me, but I was told that it is definitely a plus to have unused credit (at least in my situation).
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