cancel
Showing results for 
Search instead for 
Did you mean: 

Paying and Closing All Credit Cards - Impact On Score?

Auto Loans for ANY Credit Situation. Immediate Response.
Advertiser disclosure
New Contributor

Paying and Closing All Credit Cards - Impact On Score?

I am curious to hear what the concensus is on this as I am a bit on edge.  I worked hard to get my score where it is and have never missed a payment on my 10 credit cards and 6 store cards.  However, I am refinancing a house (first time, never owned one) and doing a cash out.  The stipulation was I would have to pay off my CC debt.  I told them I was fine with that.  I received my approval and read it over.  The fine print stated it would pay them off and CLOSE the accounts.  ALL of them.  I was ... not aware of that.  This to me seems like it's going to kill my credit rating.  Im not irresponsible with debts, just the situation I became part of.  Is this normal?  What would closing all my accounts do?  Is it like starting over again?  I just can't wrap my head around this or why they would suggest this.

Message 1 of 8
7 REPLIES 7
Super Contributor

Re: Paying and Closing All Credit Cards - Impact On Score?


@MrSteel wrote:

I am curious to hear what the concensus is on this as I am a bit on edge.  I worked hard to get my score where it is and have never missed a payment on my 10 credit cards and 6 store cards.  However, I am refinancing a house (first time, never owned one) and doing a cash out.  The stipulation was I would have to pay off my CC debt.  I told them I was fine with that.  I received my approval and read it over.  The fine print stated it would pay them off and CLOSE the accounts.  ALL of them.  I was ... not aware of that.  This to me seems like it's going to kill my credit rating.  Im not irresponsible with debts, just the situation I became part of.  Is this normal?  What would closing all my accounts do?  Is it like starting over again?  I just can't wrap my head around this or why they would suggest this.


1. I know what refinancing is, but don't know what "cash out" is, and this does not sound like a mere 'refinancing' to me.

2. I don't think you should do it.

3. Sounds to me like this is the type of transaction that blemishes your credit rating.


Total revolving limits 732500 (606000 reporting) 12/4/20 FICO 8 scores: EQ 715 TU 760 EX 735
Message 2 of 8
Established Contributor

Re: Paying and Closing All Credit Cards - Impact On Score?

Any particular reason you need to go with this lender? Otherwise I would just go look somewhere else. This requirement isn't unheard of but I still shake my head whenever it comes up.
Message 3 of 8
New Contributor

Re: Paying and Closing All Credit Cards - Impact On Score?


@SouthJamaica wrote:

@MrSteel wrote:

I am curious to hear what the concensus is on this as I am a bit on edge.  I worked hard to get my score where it is and have never missed a payment on my 10 credit cards and 6 store cards.  However, I am refinancing a house (first time, never owned one) and doing a cash out.  The stipulation was I would have to pay off my CC debt.  I told them I was fine with that.  I received my approval and read it over.  The fine print stated it would pay them off and CLOSE the accounts.  ALL of them.  I was ... not aware of that.  This to me seems like it's going to kill my credit rating.  Im not irresponsible with debts, just the situation I became part of.  Is this normal?  What would closing all my accounts do?  Is it like starting over again?  I just can't wrap my head around this or why they would suggest this.


1. I know what refinancing is, but don't know what "cash out" is, and this does not sound like a mere 'refinancing' to me.

2. I don't think you should do it.

3. Sounds to me like this is the type of transaction that blemishes your credit rating.


Cash out means I can get cash towards the equity in the house, which I am doing.  Part is going to pay off my CC debt, part is for home improvement.  The mortgage is not in my name, it's in my decease mom's name.  Hence, why I am refinancing.  The deed is in my name.  I did some searching online and found the reason for the requirement.  It's not the bank, its the lender, Fannie Mae.  If the bank is a Fannie Mae lender and a borrower has a DTI that is too high but is paying off debt as part of the loan process, the stipulation is the cards are paid AND closed.  That's just how it is, no way around it from what I'm reading.  My score is fair due to my debt, no negatives.  Only way to reduce my debt is to pay it down.  Only way to do that is this refinance/cash out.  I just didn't realize I would have to close every card I had.  I just don't know what impact that would have.

Message 4 of 8
New Contributor

Re: Paying and Closing All Credit Cards - Impact On Score?


@OpenG wrote:
Any particular reason you need to go with this lender? Otherwise I would just go look somewhere else. This requirement isn't unheard of but I still shake my head whenever it comes up.

It's Navy Federal.  I figured they would be decent and besides this, they are.  My interest rate is better than the current rate on the mortgage.  It keeps my payment the same, I get 30K cash and all my CC debt paid off (also closed apparently).  My concern is my scores are sitting at around 660/660/630 EQ/TU/EX depending on which one you look at.  Nothing I can do about it due to my high debt (no negatives).  I don't want to risk more credit pulls and lowering my score.  I also have no idea where to shop.

Message 5 of 8
Established Contributor

Re: Paying and Closing All Credit Cards - Impact On Score?

I guess it makes more sense if the refinance is being used to pay off credit card debt. The risk is that you will run up the debt and find yourself in a far worse place. I know you won't but the bank doesn't.
Message 6 of 8
Established Contributor

Re: Paying and Closing All Credit Cards - Impact On Score?


@MrSteel wrote:

@OpenG wrote:
Any particular reason you need to go with this lender? Otherwise I would just go look somewhere else. This requirement isn't unheard of but I still shake my head whenever it comes up.

It's Navy Federal.  I figured they would be decent and besides this, they are.  My interest rate is better than the current rate on the mortgage.  It keeps my payment the same, I get 30K cash and all my CC debt paid off (also closed apparently).  My concern is my scores are sitting at around 660/660/630 EQ/TU/EX depending on which one you look at.  Nothing I can do about it due to my high debt (no negatives).  I don't want to risk more credit pulls and lowering my score.  I also have no idea where to shop.


In 6 month's this will have improved your credit (if as you stated).  Your accounts will remain on your report as paid and stay there for 10 years. Plus, you will have a mortgage reporting. Getting new accounts under this scenario would seem to be easy.  After the mortgage closes their shouldn't be any limitation on you obtaining new credit.



“If you don’t know, the thing to do is not to get scared, but to learn.” – Ayn Rand
Message 7 of 8
Established Contributor

Re: Paying and Closing All Credit Cards - Impact On Score?

Please don't take my anecdote as fact or recommendation, but here it is: 

 

I was trying to think back on the particulars of the time I did a cash out refi that included CC debt. It certainly had the stipulation that the cards had to be paid.  And they were.

 

It MAY have also included,  that the accounts needed to be closed. They certainly were not.  Unless it happens in escrow (it definitely could) before closing, how is the lender going to be managing this?  How long is escrow, meaning, how long before closing would those cards be paid (and potentially closed)?  Does the contract stipulate anything about opening new accounts or re-opening old ones?  Are any of your current cards known to grant re-opening of existing tradelines?

 

If it were me in this situation, I would probably proceed, attempt to re-open some existing cards, and be aggresive but tactical about opening new credit cards.  It is likely your 6 months scores will improve on their own. Some judicious opening might even speed that process, although you will certainly be taking a "new credit" hit.

 

If I am honest, the biggest negative here to me is not  poitential score impact, it's being "forced" in a sense to not have the flexibility of a revolving credit line in your life for a period of time.  That's un American Smiley LOL

050719:     
120119:     

Message 8 of 8
Advertiser Disclosure: The offers that appear on this site are from third party advertisers from whom FICO receives compensation.