Is it best to pay off all cards before applying for mortgage?

[stefnian0426]

Hi everyone!

I was wondering if it is best to pay off all credit cards before applying for a mortgage or to leave a little?

I heard that if you leave 5% on your highest credit card and pay off all others you credit will jump up. Is that true?

We are looking to apply for a mortgage middle of Feb. Just not sure what to do regarding paying off everything. (only 3 cards wih small balances)

Thanks in advance!

[Revelate]

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@stefnian0426 wrote:

Hi everyone!

I was wondering if it is best to pay off all credit cards before applying for a mortgage or to leave a little?

I heard that if you leave 5% on your highest credit card and pay off all others you credit will jump up. Is that true?

We are looking to apply for a mortgage middle of Feb. Just not sure what to do regarding paying off everything. (only 3 cards wih small balances)

Thanks in advance!

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It varies some by individual, but generally you would indeed want to leave a little: all zero's for revolving utilization is a straight negative in the FICO algorithm and you want to avoid that for mortgage qualification.

The general advice which works for me and others is simply leave some small amount (5% is fine, anything 9% or less is the conventional wisdom) on one card and let the rest report $0 - you really don't have time to try to make it better than that.  I'm in process of doing that right now after realizing I should really go buy a condo next month haha.  

[DaveInAZ]

Having one CC report a balance 9% or less of the credit limit and all others report a $0 balance maximizes your credit score. But on of the most important factors in obtaaining a mortgage is DTI - Debt to Income ration. Lenders want your mortgage payment to be no more than 28% of your income, and mortgage plus all other required payments (CCs, car loans, child support, etc.) to be less than 36%.

I'm refinanccing my mortgage next month. I have 6 CCs/store cards and no other obligations. I have a Cap; One Visa with $850 balance, 8.5% of CL. Since it is interest free until June and the minimum payment on that balance is only $25 I'm leaving that balance and paid in full all others. In calculating DTI, mortgage lenders use the minimum payment for CC debt.

[Anonymous]

Remember that everybody who is "leaving a little" is still paying every card in full every month. They are just shifting the timing so that all but one cards are paid off before the statement cuts, while that one card is paid off after the cut but before the due date. 

[stefnian0426]

Thanks everyone.

Someone did tell me to leave 5% on the card that has the highest limit.

We dont know what we would be approved for but believed to be around 150k (which my bank told me last year)

We dont want to spend that much. We would like to spend 130k max which would put us at 27%. With his other payments 29%.

[Anonymous]

So, this is to say, the best route is to:

(1) Get all cards down to $0 and

(2) Keep your highest limit card for regular expenses (<5% CL), let statements cut, pay in full monthly @ due date.

Just want to make sure I have it right, we're right at the 720 line and looking for every little way to get into the 740 tier.

[Revelate]

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@Anonymous wrote:

So, this is to say, the best route is to:

(1) Get all cards down to $0 and

@(2) Keep your highest limit card for regular expenses (<5% CL), let statements cut, pay in full monthly @ due date.

Just want to make sure I have it right, we're right at the 720 line and looking for every little way to get into the 740 tier.

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That's pretty much exactly what I'm doing.  I zeroed out all my credit cards except one and kicked a payment to that one too, cancelled a couple awkward recurring bills or moved them to my biggest tradeline and will only be using that one big tradeline for everything during this period.

Already moved my score from 671 to 683 Beacon 5.0 which is a non-trivial tier up, hoping to get a couple more points as I have another balance or two that has to report to zero such that I can have a buffer for the inevitable inquiry spam to keep me in that tier for any pulls pre-closing and keeping my fingers crossed that my EX '98 and TU '04 will be at least that high when the lenders pull my scores.