I should be applying for my first mortgage next year, should the availability of high LTV mortgages return. In the meantime I’ve been assessing my current credit situation. When I started out in my career I was on a relatively low salary but starting on a path where I expected pretty rapid career and salary progression. In order to manage my living costs initially, I took out a couple of 0% purchase cards. Some time later I then moved these to 0% balance transfer cards and have been paying them down quite aggressively for the last couple of years.
I’m now in a position where from next month, the cards will be cleared. My total available credit is pretty much at 100% of my annual gross salary, with some cards having not had a transaction/repayment for a couple of years with a zero balance.
Do I close down the cards and see the available credit drop, or keep them open (some will eventually close due to inactivity) to show I have a high available credit/good credit history with no missed payments.
I asked this of my mortgage advisor and he said that lenders aren’t really bothered - they’re only interested in the amount outstanding and monthly repayments (which will be nil). But I think that seems too simplistic an answer really.
What he said… . Also believe there is an minimum optimal credit limit size as well for your credit score. So 1 or 2 cards with a balance available of £16k or above is ideal.
I close all the cards after the 0% deals finish. That way after a period of time (6-12-24 months) I can apply again for them as a new customer.
I do keep one card, with a medium credit limit for emergencies / occasional spend which I pay off in full every month.
I have noticed, that from time to time mortgage applications cap the total amount they offer to lend less outstanding credit card balances or less credit limits. They do take into account monthly credit card spend during affordability assesment.
So a statement like “I have one credit card, zero balance, no monthly payment” might be the best outcome in terms of mortgage application on the affordability side of things.
A card will ding your score if it’s >50% of your credit limit, so it might improve your score to get more credit to get that percentage down. Totally counterintuitive, I know. Depends how you use your cards right now (I kept one card with a deliberately low limit thinking I was being frugal… silly me).
. Also believe there is an minimum optimal credit limit size as well for your credit score. So 1 or 2 cards with a balance available of £16k or above is ideal.