How will old credit cards affect my otherwise excellent credit score?

December 8, 2004 8:36 PM

Credit Reports. I've just received mine from the big three via MyFICO.com. I've got above average scores (750+), but I see a bunch of old credit cards that may or may not affect my score. You see, I'm getting my finances in order to go home loan shopping for the first time. What's steps should I be taking to make loan officers like me?
posted by RobbyB to law & government (11 comments total)

As far as I could tell when I was house shopping last year, the only thing lenders cared about was your FICO score, and being over 750 is great and puts you near the top of trustworthiness.
posted by mathowie at 8:53 PM on December 8, 2004

I agree. We had a 690 when we bought a care and got a great rate. They said if we had had a 700 or better, we would have been in the top bracket I think (for a car lone anyway). We easily qualified for our house several years ago when we had income but our credit score was much lower. If anything, raising your score a few points by getting rid of the old stuff may make people wonder why you don't have a history. Just sayin'.
posted by Doohickie at 9:31 PM on December 8, 2004

I really hope people don't give out huge loans for homes and cars based solely on FICO scores. Mine was 750+ when I was making $400 a month last year...
posted by shepd at 10:10 PM on December 8, 2004

Don't close out the old cards; they contribute to the 15% of the credit score pie. Meaning they represent your "Length of Credit History". Fine to pay them down, but *don't* close the accounts.

Paying off the card each month is good practice, but is not reflected in the score. When the credit report is called up, it uses the currently stated balance, so it's best to always keep a low balance, as that's 30% of your score. It's better to use cash/check/debit.

Also, if a card hasn't been used for 6 months, it's a good idea to make a $20 dollar purchase, and pay it off. Otherwise it isn't reflected in the "History" portion. (I think)

And NEVER make a large purchase until you have house key in hand. When the loan officer says you're approved, it is NOT the same as the loan being "closed". The underwriters can choose at their option to run another report on you, and if you've financed furniture, a new car etc. it will throw off your ratios.

With a score over 750, don't worry about them liking you. If you've got 2 years at the same job, the picking's yours.
posted by Feisty at 10:28 PM on December 8, 2004

hahaha, mines exactly 0.
posted by Keyser Soze at 11:21 PM on December 8, 2004

its not so much the loan officer that you need to impress - they are salesmen (and women) and want you to qualify.

the underwriters actually make the determination. A high credit score is incredibly helpful in initial screening and such, but ultimately, your debt ratio is what determines how much you can borrow. most modern lenders allow a 30/35 debt ratio, meaning %30 of your gross income can go to housing (PITI or principal, interest, taxes, insurance) and %35 of your gross income can be for all debt, mortgage included. Better credit and higher income let them stretch the ratio. Some will go as high as 38/45.

The best thing to do is to eliminate as much of your existing debt as possible. Meaning payoff credit cards and car loans and student loans. That is more important than saving for a downpayment. Most lenders have great first time homebuyer programs that assume you will have little cash but as a result require that you have a responsible credit history and low debt ratios.

So while your score is important, since it's high, don't worry about the information on there (unless its incorrect). Get your debt in order.
posted by angry jonny at 6:56 AM on December 9, 2004

SO and I are both in the 650-700 range and we know we have excellent credit. 750 has got to be exemplary. I agree with previous comment that with 2+ years at the same company, you've got absolutely nothing to worry about. Just don't buy anything crazy (i.e. a car) or miss any payments between now and signing the papers.
posted by suchatreat at 7:24 AM on December 9, 2004

Over 720 and you're golden. And (seriously) at that score I just bought a house on a stated income loan. Meaning, I told them how much I make and they believed me.
posted by glenwood at 7:31 AM on December 9, 2004

Qualifying will not be your problem. The banks will be happy give you more debt than you can handle. Be careful. It used to be the rule of thumb to not buy a house for more than twice your annual salary. Now they're saying 2.5 to 3 times salary simply because houses are expensive. This results in more and more people who are "house poor", who own a house but can't afford a basically comfortable lifestyle after paying their mortgage.

Personally I just bought a house (January 04) for 2.8x my salary, so I'm speaking from experience.
posted by knave at 7:40 AM on December 9, 2004

750 is fabulous, but I would still clean it up. I view it as shaving before a date. :) Good luck! We bought our house about a year and a half ago, and it wasn't as bad as you might think. :)
posted by Medieval Maven at 7:42 AM on December 9, 2004

Hey knave, my dad wrote a book on that problem and developed the concept of "shelter poverty." Turns out a third of the US can't afford all of their basic necessities after paying for housing costs.
posted by spaghetti at 9:43 AM on December 9, 2004