Well, the annoying thing is that my current rent is double what my mortgage payment would be, but they don't take rent into account when figuring out your credit.
Is Cancelling Credit Cards Really Bad for Your Credit?
- Thread starter Ro_Laren
- Start date
How is that possible? Wouldn't they ask you what your current income was and then your outgoing payments minus your housing expense?
I would assume that the effect on your credit score will be determined by how long you've had the card, how much the credit line was, and how many cards you cancel at once.
If you have five cards in your wallet, pay them off, and then cancel all but four, it's probably going to affect your score more than if you just cancel one.
And, in part, it would depend on why you're cancelling the card versus why it matters in the first place.
I have a mortgage, I own two vehicles, I have some credit card debt, and I'm just about to finish off my student loans. My wife and I have also inherited a bit of money lately from inheritances. If we cancelled a credit card or two, it would make NO difference to us right now, and our credit scores would likely rebound rather quickly if they were affected. But we're in a pretty secure place right now where we don't need MORE credit.
If you have five cards in your wallet, pay them off, and then cancel all but four, it's probably going to affect your score more than if you just cancel one.
And, in part, it would depend on why you're cancelling the card versus why it matters in the first place.
I have a mortgage, I own two vehicles, I have some credit card debt, and I'm just about to finish off my student loans. My wife and I have also inherited a bit of money lately from inheritances. If we cancelled a credit card or two, it would make NO difference to us right now, and our credit scores would likely rebound rather quickly if they were affected. But we're in a pretty secure place right now where we don't need MORE credit.
It seems to me that showing financial responsibility is a better indicator of risk than anything else. If a person has demonstrated the ability to pay off debt on time and not take on debt they can't handle (i.e. having a high available credit level, yet not using it beyond what they can handle) they have shown that they can manage their finances in such a way that they will pay their debts on time and not default. For example, I have a rather high credit score in spite of a fairly low income. In fact, my available credit on my two cards is higher than my annual income, yet I have never made a late payment and I haven't even paid any interest on those cards in a long time despite using them extensively every month. I have a credit history of almost 20 years to back that up. This behavior has proven to creditors that I can be trusted not to take on more debt that I can handle and I will find a way to make the required payments on time.
I swear I'm not being paid to post Dave Ramsey links. (This is the second one I've done today) But this article does have a very easy to understand break-down of how the scores are calculated in general.
Giving you so much credit you couldn't afford the monthly payment if the cards were maxed makes no sense regardless of how good you've been with payments.
They may ask, but it doesn't make a difference. It's all about the debt-to-income ratio. Rent payments don't factor into that.
Wait, so they didn't factor in your rent at all? You got declined because you had too much/little debt? Interesting...
See I expect to be asked as a final question "do you have any other significant outgoing payments?" after being asked about credit cards and loans.
American banks just sound stupid stupid stupid. Hard to feel sorry for their recent troubles.
Places that reduce your credit to a 3 digit number don't take that into account no. If you go to a place that can still do manual underwriting they should take that into account.
The article does talk about that, but IMO it's generally garbage. Or rather, very specific advice to a very specific audience (the 'holy shit, I'm in over my eyeballs in debt!' crowd). Here's the center of his whole article, for example:
I agree that it's ridiculous, but not the way he says. His summary is ridiculous. You DON'T have to be in debt to have a good credit score. All you have to do is show that when you DO borrow money, you pay it off responsibly! Only the very first part of his statement is even true. You DO have to borrow to have a credit history (otherwise, you wouldn't have ever asked for credit, duh), but paying it off on time, or in full every month on a credit card, is perfectly acceptable, and gains you an excellent score.
Given that his whole scheme is aimed at the financially irresponsible and in crisis, his attitude makes some sense, but rarely translates rationally to normal folks. I pay my credit card off, in full, every month. And get cash rewards for putting the debt on there. Essentially, i get a 1-2% discount on everything I buy by using the card, even when I could pay cash. I just write one check at the end of the month. Why would paying cash be better, again? What part of what I'm doing negatively impacts my credit score (just had it run yesterday for a refinance, and it's excellent, by the way)?
For people drowning in debt, his plans make sense. Those people are in trouble, and need drastic action. They've also generally shown little to no self-restraint, so need these sorts of draconian rules imposed. When you try to take the same drastic action without the NEED for it, though, it comes across a little tinfoil hat-y.
Why WOULD rent factor in? Actual debt would be the only thing they'd really need to care about. If you have car payments, and then buy a house, you'll probably still owe on the car. Not as likely to keep paying rent, though.
On the plus side, the rent money IS still being considered. They are counting it as part of your income, and not a debt. So if you make $1000 and pay $400 in rent, they aren't counting you as having $600, they're working with the full $1000.
Um, because you might be paying rent and a mortgage? He might intend to fix the place up and maintain a rented accomodation or who knows? Just looking at a score without context is stupid.
I'm sure this doesn't apply to you, but most people spend 12-18% more than when using cash. Subtract the cash back and plastic users spend 10-16% more, even when writing one check for the full balance at the end of the month.
Source
That's what I guess too. When I learned that factoid I thought "Oh yeah, I've done that," and could think of 3 recent examples, so I know it applied to me anyway.
I suppose that makes sense. It just bugs me when I say that I've been paying X in rent for the last 6 years, yet they tell me I can't afford to pay a significantly smaller mortgage.
The problem is, every mortgage is a substantial risk. It's a lot easier to kick a deadbeat tenant out than to foreclose on a mortgage. Especially now, lenders are very skittish. There's also more to a mortgage than making the monthly loan payments. There's homeowner's insurance, property taxes, maintenance on the property (which is essential to keeping the value up), etc. And based on your credit score, lenders already know the statistical risk that you will default. If it's higher than they're willing to allow, you're just out of luck.
This is a big part of why the housing market is still in such bad shape. There's a plethora of homes for sale out there, prices have dropped considerably, but the days of easy credit are over. Banks are very skittish about lending right now.
If you really want to go for a mortgage, look into an FHA loan. Those require a credit score of 620.
Yep, the lending criteria got real old-fashioned real quick. People like you are now paying the price for people who got loans when they really couldn't handle them or got a loan for a big house when they could only handle the loan for a right-sized house. It's a bummer for sure for folks like you.
The problem right now is that the house I want to buy would be considered a rental property, and (at least with the one bank I talked to), you can't get an FHA loan for that. It's a whole big thing.
I actually got a raise last week, and now I qualify for the loan I need. I just need to figure some other things out.
I really wish I had known about this house last year before they took away the First-Time Homebuyer Tax Credit. I would have snapped it up in a heartbeat!
Ah, sorry, I missed that you were trying to buy a property to rent it out. In that case, I'd have to ask: are you crazy?
Being a landlord is a losing proposition if you've only got one property to rent out. You'd be lucky to break even once you factor in the taxes and maintenance and so forth.
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