Personal Finance

Mortgage broker suggested I should close unused credit card

  • Last Updated:
  • Mar 21st, 2017 12:11 pm
[OP]
Newbie
Jul 8, 2014
14 posts
3 upvotes
Westmount, QC

Mortgage broker suggested I should close unused credit card

In a chat with a mortgage broker about my financial situation, after I told her I have 7 CCs, she seriously suggested I should close some unused credit cards.

As far as I know, having many credit cards won't hurt the credit score. So does the bank also consider my total available credit when evaluating my mortgage application?

Thanks,
24 replies
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Dec 21, 2007
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Scarborough
As far as I know, if you start closing out a lot of cards at the same time it will really hurt your credit score. Also, depending on your situation, if you carry a balance and you cancel out cards, your credit utilization will go up, which also could lower score (potentially).
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Aug 18, 2005
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I have heard of this before. Some underwriters consider a big unused credit card like a liability since some people buy a house and then spend mad amounts of money on furniture, renovations, etc. So their ability to pay the mortgage becomes compromised due to CC payments.
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Nov 23, 2005
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Jucius Maximus wrote:
Mar 19th, 2017 12:11 am
I have heard of this before. Some underwriters consider a big unused credit card like a liability since some people buy a house and then spend mad amounts of money on furniture, renovations, etc. So their ability to pay the mortgage becomes compromised due to CC payments.
This.

Getting approved for a mortgage is more than having a good credit score.
Jr. Member
Sep 9, 2016
123 posts
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Toronto
It happens. You may be asked to close some. However, i would wait until the actual mortgage furnisher asks, rather than the broker. That way you only close what the mortgage provider want rather than presuming. Plus if the mortgage provider asks you to close, any effect on your score won't have any effect on their decision.

There is also a thread about someone who was asked to close some cards but the mortgage went through with the cards still active. So it may not be a hard requirement.

Closing credit cards can have a negative effect on you Age of Accounts, Utilization and Variety of credit (credit cards from the big 5 are weighed differently from other cards). It will more that likely lead to a lowers score.
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Dec 12, 2006
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You have more to story than you have included, as you stated you chatted to broker about your financial situation...and they suggested closing credit cards.

If you applied with broker, the will have know you have 7 cards, your score, etc... They do a preliminary and run through credit and apply to only a few lenders they know from there database you have a chance to get approved from at bets rates ( or best kickbacks to broker )

So maybe more to situation on why they suggested closing card.

I would not touch or open any credit lines after applied, like stated unless the lenders asks you todo something in writing on a conditional approval.
[OP]
Newbie
Jul 8, 2014
14 posts
3 upvotes
Westmount, QC
Thanks guys for the information.

I thought I had almost enough savings for down payment and planned to buy a house in suburbs area of Montreal in early 2018. This broker is a friend of mine, so I just asked several questions, just for information.

Speaking of my CCs, I have several crappy store credit cards. Back when I came to Canada with zero credit history, these store CCs were best I can get. Now they are the oldest CCs I have.

Since this "closing unused cards" is a real thing and I still have some time, I will start to close some useless CCs.
Jr. Member
Sep 9, 2016
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Toronto
They are your oldest accounts and you want to close them and think they are useless? Smh! You need to familiarize yourself with how the credit system works.
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didula wrote:
Mar 19th, 2017 3:08 pm
Thanks guys for the information.

I thought I had almost enough savings for down payment and planned to buy a house in suburbs area of Montreal in early 2018. This broker is a friend of mine, so I just asked several questions, just for information.

Speaking of my CCs, I have several crappy store credit cards. Back when I came to Canada with zero credit history, these store CCs were best I can get. Now they are the oldest CCs I have.

Since this "closing unused cards" is a real thing and I still have some time, I will start to close some useless CCs.
So with this info,

If buying 2018 you would have recovered from the small hit from closing the cards.

But as well, your average credti history will now be reduced thus affecting score. And closing a card will increase your utilization.

In my opinion, if these are zero fee cards if not used. Keep them. If you pay a yearly fee, check how your utilization will be affected, by closing a card as per example:

7 cards total and credit 20k, balance owing 10k.... your utilization is 50%. If you closed cards that had 5k limit, now your utilization would 66%.

Closing a card now will affect average age accounts.....so closing a year early will cost you some credit score by not keeping it a year.

So if your paying fees for cards, close cards and pay off as much on credit used in coming year.

Otherwise stay as is, and no changes but reduce credit used as much as possible in year and credit will be good.
Member
Jan 15, 2017
389 posts
234 upvotes
didula wrote:
Mar 19th, 2017 3:08 pm
Thanks guys for the information.

I thought I had almost enough savings for down payment and planned to buy a house in suburbs area of Montreal in early 2018. This broker is a friend of mine, so I just asked several questions, just for information.

Speaking of my CCs, I have several crappy store credit cards. Back when I came to Canada with zero credit history, these store CCs were best I can get. Now they are the oldest CCs I have.

Since this "closing unused cards" is a real thing and I still have some time, I will start to close some useless CCs.
I suggest you hit the pause button on closing credit accounts. Older credit accounts are the best as they show a long history. I also have a store branded credit card and it is one of the oldest cards that I have (nearly 20 yrs now). I would never close the account and use it about once a year just to keep it active.

I would also suggest great caution from a friend who happens to be a mortgage broker. No mortgage broker worth their salt would provide general information regarding a mortgage approval based on one criteria, such as credit score. Mortgage approvals are never based on one criterion alone. Also, mortgage brokers are not trained nor schooled on how to specifically increase credit scores. Most rely on the general information that can be found on the internet and as such, are not experts on credit scoring models and how to increase your credit score. A mortgage broker should only provide that type of advice if it is a condition that a lender has established for approval.

Remember - just because your work permits you to see things like a credit score doesn't mean that you are suddenly an expert in it. Mortgage brokers may also see home appraisals every day but that doesn't make them qualified to do an appraisal or to provide advice and guidance on how to improve the value of a home.
Sr. Member
Feb 10, 2015
600 posts
219 upvotes
It isn't the number of cards that matters, it is the total available credit.

When the lender calculates your GDS/TDS they will do it based on the assumption that all of your credit facilities are maxed.
Member
Jan 15, 2017
389 posts
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DanTh3Man wrote:
Mar 20th, 2017 10:41 am
It isn't the number of cards that matters, it is the total available credit.

When the lender calculates your GDS/TDS they will do it based on the assumption that all of your credit facilities are maxed.
This is incorrect. Mortgage lenders calculate your debt ratios based on the debt that you have, not the credit that you have available. It is, after all, a debt ratio, not a credit ratio.
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Feb 10, 2015
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skeet50 wrote:
Mar 20th, 2017 10:48 am
This is incorrect. Mortgage lenders calculate your debt ratios based on the debt that you have, not the credit that you have available. It is, after all, a debt ratio, not a credit ratio.
Are you sure about that?

Consider a hypothetical situation where a guy has a combined $200k available on CCs. Do you really think that a lender isn't going to consider the fact that this guy could go out and rack up $200k (at 20%+) in new debt once he gets his mortgage?

Seems like a silly way to do business to me.
Member
Jan 15, 2017
389 posts
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Yes, I am sure about that. As I stated above, the ratios are used to calculate your debts, not your credit availability. Only the outstanding debt balances are used in the calculation of your TDS and GDS for mortgage qualification. Here is direction from CMHC on how to calculate these ratios: https://www.cmhc-schl.gc.ca/en/hoficlin ... pr_015.cfm
Member
Mar 21, 2013
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EDMONTON
skeet50 wrote:
Mar 20th, 2017 11:07 am
Yes, I am sure about that. As I stated above, the ratios are used to calculate your debts, not your credit availability. Only the outstanding debt balances are used in the calculation of your TDS and GDS for mortgage qualification. Here is direction from CMHC on how to calculate these ratios: https://www.cmhc-schl.gc.ca/en/hoficlin ... pr_015.cfm
Your response doesn't reflect reality, which is that many lenders don't look only at the prescribed ratios. They have the right to look at whatever financial factors they want, it's their money being lent after all. Sometimes all sorts of extra documentation is requested, especially if someone is self employed. I know for a fact that some lenders look at max CC capacity.

Yes, those numbers don't form the ratios. They are looked at separately.

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