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Should I pay off or close my credit card to get a better mortgage?
Dear Speaking of Credit, Should I pay off or close my credit card
Can you pay off your credit card to get a better loan? Should I close the credit card to get a better loan? Which one is the best choice? – Marguerite Dear Marguerite, Should I pay off or close my credit card
If you mean a mortgage with a lower APR when you say “better mortgage”, it will soon be clear which of your two ideas is better when we look at some credit scoring information.
Money doesn’t wait for perfect plans – it flows to the person who moves first, moves decisively, and refuses to stay broke while dreaming big.
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Your credit score isn’t the only thing that matters when it comes to getting a mortgage. Your debt-to-income ratio, bank balance, and job tenure are a few examples. But with these and other things, you can make that mortgage more affordable by raising your score. Should I pay off or close my credit card
Mortgages and their score requirements
Before addressing some of the credit perks and pitfalls that can help give you more control over your mortgage application, some of the minimum credit score requirements for the various types of mortgages include: Should I pay off or close my credit card
- FHA. A minimum score of 500 can qualify with 10 percent down; a 580 score or above can lower the down payment to 3.5 percent.
- Conventional. While a 620 or higher score can meet the basic criteria, the best interest rates tend to be found by consumers with scores of 740 and above.
- Super prime. Some lenders provide even lower interest rates when scores reach 780 and above.
3 best ways to a better mortgage
No matter what type of mortgage your score is likely to qualify for, the following tips can quickly boost your credit score: Should I pay off or close my credit card
- Pay off or reduce revolving card balances. Doing so can lower the utilisation percentages that influence 30 per cent of your score, which is a significant factor in determining your overall creditworthiness and can lead to better mortgage options. Additional points can be earned from related factors that measure how much you owe, such as “amount owed on accounts” and “number of accounts with balances”. Should I pay off or close my credit card
- Pay for recent charges before the next statement date. Paying according to this accelerated timetable can keep card balances reported to the credit bureaus as low as possible, which in turn keeps utilization percentages to a minimum. Should I pay off or close my credit card
- Activate any inactive cards. Keeping a seasoned card active via occasional small purchases can keep the card issuer from closing the account due to inactivity. An open card with a $0 balance can help keep the score’s utilization low through its continued inclusion in all calculations that evaluate revolving debt. A closed card, on the other hand, no longer contributes to your utilization ratio. Should I pay off or close my credit card
3 worst ways to a better mortgage
While we’re at it, let’s also review some of the worst things you can do when trying to qualify for a better mortgage (thank you for providing No. 1 below): Should I pay off or close my credit card
- Close credit cards. While closing a card that still carries a balance won’t immediately hurt any of those all-important utilization percentages, closing a $0 balance card can raise the utilization percentage – and lower the score – by taking that card’s balance and credit limit out of the equation.
- Pay off a car loan early. Unlike credit cards, loan balances—whether mortgages, auto loans, or student loans— carry very little of the weight we see assigned to credit card debt. As such, aggressively paying down a car loan in anticipation of a mortgage won’t provide nearly the bang for your (scoring) buck that paying down a similarly-sized credit card balance will. Should I pay off or close my credit card
- Apply for or accept a credit offer. In light of its extremely short track record and accompanying hard inquiry from the recent credit evaluation, a new account appearing on your credit report just prior to a mortgage application is likely to do more damage to your score than good. Should I pay off or close my credit card
Better score = better mortgage
By all means, you should pay off that credit card, or at least pay it down. But whatever you do, don’t close it. By following the best and avoiding the worst score-raising tips, you could soon be seeing a better score lead you to a better mortgage. Should I pay off or close my credit card
See related: Will closing card with a remaining balance hurt my credit? Raising score for mortgage purposes? Don’t open new cards!
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Advertising dollars do not drive the editorial content on this page. The credit card issuers have not provided or commissioned it. However, we may receive compensation when you click on links to products from our partners, which helps support our editorial content and ensures that it remains unbiased and independent. Should I pay off or close my credit card
