Question by S.W.: Is it better to pay off and close credit card accounts or pay them down to below 50% to raise credit rating?
Our morgage broker is telling us that we should pay down our multiple credit cards to below 50% of available credit instead of paying off a couple in full and then closing the accounts. She says this will do more to raise our credit score. Is this true? We want to refinance our mortgage but my husband has a 694 credit score and needs it to be at least 700. (I have 749 so I’m fine.)
Best answer:
Answer by melissap1
Pay them down ,but dont close the accounts cause it will hurt your credit rating if you do ,thats what i was told
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Your mortgage broker is right. Paying down your cards to below 50% of the available line (preferably below 30%) and keeping them open is a better strategy.
Your credit score is based on the following things:
1. If you pay your bills (at least the minimum amount due) on time
2. If you have had credit in your name for at least 5 years (longer is better) about 20%
3. If the total amount of outstanding debt is less than 30% of the available credit lines (less than 10% gets you outstanding credit scores).
4. You have a healthy mix of debt (not all credit cards or high risk places like payday lending, but some cc’s, some car loan some student loan, etc.)
Paying off a card helps with #3, but closing it hurts both #2 and #3 (since once you close it that line is no longer available to you and therefore the ratio of all other debt goes up).
What I would do is pull his credit report for free at http://www.annualcreditreport.com. See if there is anything on his credit report that violates one of the things above (such as late payment reported in error, or too much credit loaded onto one card pushing that ratio above 50%), you can correct that.
Your mortgage broker is correct, pay down to less than 50% especially under 33% is better. By closing accounts you can actually hurt your credit score especially if these are your longer term accounts.