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Debt Relief – Insolvency – Bankruptcy Information » Student Loan Help » Should we close our credit cards to secure a home refinance loan?

Should we close our credit cards to secure a home refinance loan?

We are trying to refinance to get a lower rate. We are not upside down in our home and my wife and I both work. Our cars are paid off, we pay off our credit cards each month and the only long term debt I have is my student loan.

We recently started the process to refinance our home to take advantage of the low rates available. Recently the broker said he could close a deal if we closed our credit cards to show that we had no outstanding debt with them. We have paid our cards off every month for over 4 years. It just seems strange to me. The credit card companies said we could re-open the same accounts without having to go through the application process if we do it within a month. Easy enough, but it just seems strange. Im not very savy about mortgages and loans. Basically I work and pay my bills. Any advice?


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4 Responses to "Should we close our credit cards to secure a home refinance loan?"

  1. Weimaraner Mom says:
    Even though you pay off your credit cards and they all have a zero balance, what a loan person sees is that you have the potential to run up your credit cards and accumulate a massive amount of debt, so paid off credit cards still open actually hurts you rather than helps you to be honest. If you had one credit card and it had a line of credit of $1000.00 and you had $400 on it and you only paid a small portion each month that would be more favorable than you having five credit cards all with a limit of $5K each and $0 on each one, that actually scares off loan people.

    I wouldn’t close all your cards I would close all but one that way you limit your liablity. When the loan has been approved and you’ve closed then reopen your cards but not before then because they will pull your credit the day of closing.

    Good luck

  2. chatsplas says:
    I have an alternate solution:
    Keep your cards OPEN, but stop using them. . . . .pay everything cash or debitcard until your loan is approved and closed. . . .
    What happens is that when they pull your credit, they see the amount due at the moment they pull the credit, and then amortize it over the year, showing indebtedness
  3. ca_surveyor says:
    Do NOT close your credit cards. Pay them off but keep them active (simply stop using them).
    Either your broker gave you bad information or you misunderstood him.

    Your credit cards establish a credit line for you. How you have paid them in the past will not be affected by closing the accounts.. however if you close them your credit line will drop.. so.. your score will also drop.

    As far as reopening the account.. you will still go thru the application process and they will look at your credit score also. (WHich will be lower because you closed the cards).. so if they re-issue them they will be for a smaller amount (and , while your score might go higher, it will not be as high as if you just kept them and paid them off- if that makes sense). (welcome to Catch 22)

    So.. there is no value to CLOSING the account.. pay it off and cut up the cards to insure you stop using it.

  4. real estate guy says:
    Your broker is giving you WRONG information.

    KEEP THEM open and pay them off each month. In fact, one of the best ways to increase a credit score is to ONLY USE 40-50% of the credit limit each month and pay it off in full. If you use the max credit line, but pay it off each month, it makes it appear that you have problems.

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