@wyattm wrote:
Hello
I'm not sure where to post this question. I'm planning on applying for a debt consolidation loan with nfcu and I am wondering if they do approve me and require me to close my account with them how will this reflect on my score? I'm planning on buying a home within the next 6 months and I'm worried this will look bad on my credit report. I have one credit card and a CLOC with them. I also have 3 personal loans. Two are almost paid off and the other still has a couple years left. Any input would be appreciated. Thank you!
Need more information, though why would they require you to close your account with them?
Anyway when we're talking debt consolidation, the big thing to be aware of is how much revolving utilization you're carrying both on individual cards and in aggregate. What I'd suggest is simply posting each tradeline (card and the CLOC or similar LOCs if you have them) in something like:
CC1: current balance / credit limit
CC2: current balance / credit limit
CLOC: current balance / credit limit
And someone can take a look to see if you're leaving much of anything on the table points wise. Consolidating installment loans never makes sense from the FICO perspective, but might matter in terms of interest rate and therefore payment and therefore DTI calculation for the mortgage process. Basically if your DTI is fine with the payments for the installment loans included, leave them, if you need to clear space, then you pay them off.
@wyattm wrote:
Thank you for the reply. I'm embarrassed to say but basically all of my credit cards are maxed out and I have 3 personal loans through NFCU which is why I'm assuming they will require me to close them once they pay them Off. One has a 450/1000 balance, 1400/2000, and 5000/6000 balance. My credit cards total 14k and are all maxed out. I was only going to consolidate the personal loans if it helped my DTI. I appreciate the responses.
Do the DTI math on a new loan w/current loans and impending mortgage payment.
If you're able to get the consolidation loan, I'd do it in your situation both from financial and FICO perspectives assuming those balances sitting on 15-20% APR's. I'd certainly go socialize the idea with NFCU... if they make you consolidate the others, ain't no big thing if it's even on the rate or better. It may be something of a challenge to get the loan though with what you describe.
In general if you pay off a loan it will be closed; not a big deal though in this case.
@wyattm wrote:
My DTI will be much better off if I include all outstanding debt including my personal loans with them. I spoke with a rep and she informed me that their debt consolidation loans are flagged for the lending team and reviewed differently than a regular personal loan since you are trying to pay down your debt and not acquire more. I'm hoping with that in mind I will get approved. Will my scores drop if I have to close my credit card and checking line of credit though? She said if that happens to be one of the terms I have the option to take those out of the loan so I didn't know what to do if that happened to be the case. If just continuing to pay on them myself would be better than having them paid off but closed.
Closing the cards will tank your FICO 8 scores; however, the mortgage trifecta isn't really bothered by that.
Do what makes financial sense and I think you already know that; if you have to close the cards, so be it. Open up new ones now if the mortgage if far enough out, or get mortgaged, then open up new ones. It's not the end of the world to go without credit cards for a while and since the accounts will still be there for 10 years you have plenty of time to re-establish positive tradelines before they fall off.