Personal Finance

Mortgage broker suggested I should close unused credit card

  • Last Updated:
  • Mar 21st, 2017 12:11 pm
Member
Jan 15, 2017
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Blubbs wrote:
Mar 20th, 2017 2:35 pm
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.
I am a little confused by your statement that my response doesn't reflect reality. The calculation of TDS and GDS is standardized across the country. I was responding to a poster who stated that credit limits are used to calculate these ratios - this is indeed incorrect as they are not used when calculating TDS and GDS.

Of course mortgage lenders are free to use whatever factors and criteria that they wish (within the confines of the law) to underwrite a mortgage and qualify someone. But that wasn't what I was responding to. The reality is that when calculating TDS and GDS, credit availability is not used.
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Feb 10, 2015
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skeet50 wrote:
Mar 20th, 2017 2:47 pm
I am a little confused by your statement that my response doesn't reflect reality. The calculation of TDS and GDS is standardized across the country. I was responding to a poster who stated that credit limits are used to calculate these ratios - this is indeed incorrect as they are not used when calculating TDS and GDS.

Of course mortgage lenders are free to use whatever factors and criteria that they wish (within the confines of the law) to underwrite a mortgage and qualify someone. But that wasn't what I was responding to. The reality is that when calculating TDS and GDS, credit availability is not used.
in the original context of our discussion you were correct, CC limits do not affect the traditional TDS/GDS metrics.
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didula wrote:
Mar 18th, 2017 11:25 pm
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,
Don't close your credit cards now.

Lenders only use balances (not limits) when qualifying. However, if the limits are large, they MAY ask that you close some trade lines.

I would recommend applying for the mortgage and wait until the lender/underwriter requests for some trade lines to be closed.
Kevin Somnauth, CFA
Mortgage Agent and Real Estate Sales Representative
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CdnRealEstateGuy wrote:
Mar 20th, 2017 4:07 pm
Don't close your credit cards now.

Lenders only use balances (not limits) when qualifying. However, if the limits are large, they MAY ask that you close some trade lines.

I would recommend applying for the mortgage and wait until the lender/underwriter requests for some trade lines to be closed.
CdnRealEstateGuy wrote:
Sep 18th, 2015 10:05 am

Credit card limits do not effect your mortgage calculations...only the balances.




should-i-accept-credit-card-limit-increase-1814031/


Arrrg! Which is it??? I've heard so much contradictory information!!
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DanTh3Man wrote:
Mar 20th, 2017 3:29 pm
in the original context of our discussion you were correct, CC limits do not affect the traditional TDS/GDS metrics.
I believe that's the correct way to phrase it.

Don't some underwriters use a % of revolving limit in their calculation though, not balance? CMHC?

My prior broker was hot on reducing credit limits, though not closing cards with good history.
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Mar 9, 2012
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Credit card increases are fine, it could potentially increase your credit score (OMG WHATTTTTTTTT!). As long as increasing your limit doesn't mean spending more to you, you can take them as the offers come in. TDS/GDS, as previously explained by other users, are the base for getting approved for a mortgage + the down payment with at least 5%. All the other requests from the mortgage broker/specialist are based on the specific lender and their mortgage lending policies in place. Before you start closing anything, make sure you are going with that lender and that you will close with that lender. Don't close everything just for fun unless you hate having so many cards open like me. I usually go crazy when I have more than 2 credit cards open. Too much managements for the bills and/or what card to use where and when.
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Jan 15, 2017
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Mike15 wrote:
Mar 20th, 2017 7:38 pm
I believe that's the correct way to phrase it.

Don't some underwriters use a % of revolving limit in their calculation though, not balance? CMHC?

My prior broker was hot on reducing credit limits, though not closing cards with good history.

No, underwriters should not be using a % of revolving limit. Here is the direction from CMHC as found in the link I posted earlier in this thread:

Other Debt Obligations:

Other debt obligations include revolving credit (i.e. credit card debts, lines of credit), personal loans or car loans, etc. For unsecured lines of credit and credit cards, factor in a monthly payment amount corresponding to no less than 3% of the outstanding balance. In determining the amount of revolving credit that should be accounted for, lenders should ensure that they make a reasonable inquiry into the background, credit history and borrowing behaviour of the prospective borrower.

For secured lines of credit, factor in an amount corresponding to at least a monthly payment on the outstanding balance amortized over 25 years using the contract rate (or the benchmark rate if contract rate is unknown). Lenders may elect to apply their own internal guidelines where the result is at least equivalent to the above.
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Mythical09 wrote:
Mar 19th, 2017 8:36 am
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.
Pretty much summed it up perfectly.
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Why bother closing credit cards? Lower limits to bring available credit to the threshold specified by the lender. Do this only if and when asked by the lender.
Loose lips sink ships.
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bewiseman wrote:
Mar 20th, 2017 5:55 pm




should-i-accept-credit-card-limit-increase-1814031/


Arrrg! Which is it??? I've heard so much contradictory information!!
It differs depending on the type of loan.

For mortgages, it's only balances. Credit cards and other unsecured debt use limits (I believe).
Kevin Somnauth, CFA
Mortgage Agent and Real Estate Sales Representative
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