Closed all cards... when will score bounce back?

[ireland381]

So my husband and I just got our first mortgage, which is great... it was a VERY stressful process though, and we barely got it. Anyway, one of our underwriting conditions was that we pay off and close ALL of our credit cards (and yes unfortunately they had to be closed, not just paid to zero). We each had one open card and one card that was already closed and being paid down. My util was about 30% and his was 50%, if that matters. Both our scores went down 40 points. I was expecting them to go down, but not quite that much. We were hoping to open another card sometime soon, as we like to have something for emergencies, and to have some revolving credit open.

I'll try not to lament the fact that this is the most illogical thing I've ever heard (Congratulations! For the first time since you started college, you have NO CREDIT CARD DEBT!!! Your reward? Even worse credit!!)... is this something that bounces back in a short time? Or is having no revolving debt at all a challenge? Which begs the question of course, will we even be able to open a card any time soon?

Thankfully getting the mortgage was our biggest credit worry, but of course we want to do whatever we can to improve it (we're both at about 615 right now). There's not much else for us to do, as all we can do is pay some small collections and wait for old late payments to fall off. Oh, I should note that although all the cards were closed on our last credit report, our mortgage was NOT on their yet... will that help or make it even worse?

[jsucool76]

Revolving debt and revolving credit are different.

Who was your loan through that they required you close all of your accounts? That seems really odd..

Are you allowed to open new ones? The mortgage will probably help your score in a bit but it is still not revolving, it is installment which is different.

[Cdnewmanpac]

So the hit from closing the credit cards won't "bounce back" unless you open credit cards. Part of your fico score is credit mix and you have just reduced your revolving credit available to zero. Most experts feel you need two to three open revolving accounts to get the maximum points from credit mix on your fico. Opening new cards will hurt your AAoA, but the boost from going from zero open cards to two open cards should outweigh the hit from lowered AAoA.

While it is bizarre that underwriting required you to close your cards, you did what you had to do to get the mortgage. I would now apply for one or two cards. The amounts of the limits don't matter. Whether you use them or not doesn't matter. But the sooner you open 1 or 2 accounts, the sooner your AAoA starts aging again and the sooner your scores will recover.

Also, I would try to open before your mortgage posts, as that will drop your AAoA even more.

[tinuviel]

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@jsucool76 wrote:
Revolving debt and revolving credit are different.

Who was your loan through that they required you close all of your accounts? That seems really odd..

Are you allowed to open new ones? The mortgage will probably help your score in a bit but it is still not revolving, it is installment which is different.

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Actually, it's not installment either. It's a mortgage, which is categorized differently and is factored into the score differently. An auto loan would be an example of an installment loan. Having a mortgage will help with the mix of credit, and a mortgage that has a long, clean payment history will be a very positive factor for the score. But, revolving credit is also an important factor. The OP should look at opening a revolving account as soon as it is feasible. Are there any terms in the mortgage that prevent this for a set period of time?

[rootpooty]

Ive never heard of conditions of approval that you are to close all credit cards.  I can see if you are low income and have way too many credit card accounts open and potential for BK but other than that ive never heard of it.

[ireland381]

Yeah, I thought we were going to have to pay off our collections (probably 10-12 small collections, less than $1000 total but I can't PFD so I wasn't going to touch them), but they wanted us to do that instead. We didn't ask too many questions, we jumped through so many hoops to get this mortgage, if there was something we could feasibly do, we were going to do it. We were planning on having it all paid in the next few months anyway, but of course we didn't plan on closing the cards. It wasn't the mortgage company but the FHA underwriters who required it. I think one of the reasons was that if they were still open, even our paid cards were showing a "minimum payment"; all they ever did was total up all our minimum payments to calculate our debt to income ratio, so those payments counted even though we didn't owe anything. Or maybe they just didn't want us to go use our credit cards again, who knows.

No, there's no restrictions on getting new credit that I'm aware of. Since our scores are now even worse, I wasn't sure if we should even apply; I wouldn't want to get an inquiry and get denied and be back at square one. On-time mortgage payments should help, right? Should I just try to apply now, or wait for a few months of mortgage payments?

Otherwise not sure what else to do Very frustrated... besides two mortgage applications, neither of us has had any late payments, collections, or any negatives in about 3 years and our credit really hasn't budged in that time

[brother7]

May I ask what the terms of your mortgage were? Just wondering what current rates are for not-so-perfect credit.

[jsucool76]

Ooo. Thanks tinu I didnt know they were different.

Also, if you have some extra cash try for a secured card. If you have 10-12 collections it probably wont be easy to get a card that isnt FP or credit1

[rootpooty]

Op I was in the same situation as you a year ago without the mortgage.  I had about 8-9 unpaid collections with zero credit cards.  If I were you I would open up 2-3 secured cards.  Go with BOFA secured, Cap one secured,  and check into a local credit union. All 3 can be secured for less than 1,000.  If you have 10-12 collections and they are totaling a small amount and refuse a PFD then I would just pay those in full and go the GW route.  Out of the 8 collections I had only one accepted a PFD the others I had removed my simply sending GW letters.  In my experience you will have more success sending GW letters over a PFD.

If you take my advise I guarantee in a year from now you will be in a much much better situation.

[Creditaddict]

1.  How old are the 10 collections that are under $1k total?

2.  What Credit Cards and Companies did each of you have that they made you close?

3. you have mortgage now and 1 credit card each is that what I read or you only had 1 open before they made you close?