Closing your cc accounts to buy a house?

[Skooby]

My parents the other day said that when they bought their house, their real estate agent/person said they need to close their credit card accounts to buy the house they want.

Have anyone heard of this? Why would the seller or anyone ask a buyer to close their cc accounts?

[sweeps]

One possibility... your parents may have had too much available credit and had to reduce it by closing some of their credit cards.

Smart creditors look beyond your FICO score and determine whether you can and will actually repay the loan.

[momof1in150]

I wouldn't take that kind of advise from a real estate agent unless they were a broker. Only when they apply for a mortgage will the lender tell them if they have too much credit available.

Closing those accounts could put their credit score in jeopardy and might place them out of competitive loan options.

[Skooby]

How would they determine too much available credit?

I don't think i could ever do that. I've worked hard and had those cc too long and paid them off just to close them. I have five and i could close two they don't really do nothing for me. But there are three that I won't. I've had them since 2000/2001, closing those would kill my credit wouldn't it?

[sweeps]

As momof1 pointed out, if it was just a real estate agent's opinion, then it doesn't mean much -- they may not know any better. (But for that matter, it's none of your real estate agent's business what your financial situation is.)

But a loan officer very well could be turned off by an unusually large amount of available credit. A big spending binge would be bad for your prospective creditor.

The details here are slim, so this is all speculation anyway....

[jamai]

Originally Posted by sweeps

One possibility... your parents may have had too much available credit and had to reduce it by closing some of their credit cards.

Smart creditors look beyond your FICO score and determine whether you can and will actually repay the loan.

i don't see how too much credit can be a problem, it just means you're trustworthy. maybe a reason could be too many credit cards.

[NoMo]

Skooby, having very large amounts of available unsecured credit can affect your score. But this has very little affect. FICO loves you to borrow money and pay your creditors on time. The FICO is a "I love credit" score. It is not an indication of financial success. A person living paycheck to paycheck can have a great (800+) score, while a millionaire who does not borrow money can have a credit score of 0!
Close your CC accounts and pay for things with money you already have, You'll be much more successful in the long run.

[sakigt]

I never understood the "you may go on a spending binge" rationale. Technically I could be doing that now by buying a home I cant afford.

Anywho, in 99.9% of cases, closing accounts will lead to a lower FICO score (hrm...maybe he wants a higher intrest rate! ) for two reasons:

1) Length of credit history could be lessened by closing old accounts
2) Debt to credit ratio could be reduced. It is better to carry a $100 balance with a total available credit of $5000 than to carry a $100 balance with a toal available credit of $1000.

Knowing these things, I have 5 cards - which may be too much, but I prefer it this way. I use them for different things and 1 I admittingly only keep around because it is my oldest. If you start getting into ridiculous amounts of cards (10+!!) I would consider closing them, starting with the ones that are newer and have the lowest available credit.