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Credit Killer: Opening and Closing Credit Cards

Your debt-to-credit utilization ratio is a major factor in your mortgage qualification, particularly in the amount that you actually qualify FOR. In not so many words, debt-to-credit utilization is a calculation that includes the debt on your credit accounts, divided by credit limit on the sum of your accounts. This simple thing makes up 30% of your credit score, and it takes a major hit any time you close a credit card.

The point is, you don’t want to limit your credit history. Even if it’s a store card you opened when you were 18 years old, keeping that credit history alive and well as proof of your longevity in paying off debt is a significant factor for your mortgage qualification.

When you close an account, it shrinks that history. Long story short: Pay off your credit card and chop it up, rather than close it out.

Now, while closing can smack you with some credit killing data, the same can be done in opening a credit card. A simple application can hit you with nearly 5 points, since the company you’re opening it with will want to do a credit check on you. Five points may not seem like a lot, but if you’re on the brink of a “good” score and a “great” score, why risk it with a new credit card? No amount of frequent flyer points is going to be worth it when it comes to opening up a 30-year mortgage.

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