Do I cancel credit card

[barker22]

Hi All

Just wondering whether it would be better or worse as far as credit rating goes to cancel an old credit card.

I got it a few years back to fund a couple of purchases as it was 0% interest on purchases. I paid it off within 6 months.
It's now well past the 0% introductory benefits and I haven't spent on it for over 12 months nor intend to in future.

Other info which may be relevant:
Halifax Mastercard
£5k credit limit
Nothing owing on it for well over 12 months

Looking at a mortgage application in the future, reality is I am 18 months away from that though.


Whats the general consensus?

Thanks for any help

[Wacky Racer]

Why not keep it going, just spending a bit on it, (say Petrol), and pay it off in full every month?

Got to be better than cancelling it for your credit score I would have thought.

[craigjm]

Depends how many other cards you have. If its the only one keep it. If you have 4 with 5k limits then maybe not.

[barker22]

Further facts that maybe aid the discussion

Only credit card I have
No other loans/debts

I am led to believe there are two trains of thought
a) spend on it and pay it off as it shows good repayment commitment
b) it shows I have pre-approved 5k loan available straight away thus lowering the mortgage potential

[craigjm]

As with any financial decision, the answer is "it depends" each lender is different in terms of how they score and there is no such thing in reality as your "credit score"

Lets take two examples assuming you are earning 50k to make the maths easy.....

You see a flat you like that is somewhere in the frozen north and priced at £150k and you have a 20% deposit so are looking for a mortgage of 120k so 2.4 times salary

vs

You see a studio flat you like in a London and its priced at 300k and you have a 10% deposit so you are looking at a mortgage of 270k so 5.4 times salary

In scenario one it would make no difference to many lenders. In scenario two it might, only might, tip the balance.

[BlueFiestaST]

Keep it open.
Evidence of you having some responsibility and can be relied on with credit.

[Jockman]

Keep it open.

Reduce Credit limit to £1k.

Use it occasionally, especially on items that would benefit from section 75 cover.

[djc206]

I though high credit limits were good for your rating as they demonstrate that you're trusted? I also thought that the age of credit accounts was a factor. The fact that you are using none of your available credit can only paint a good picture surely?

I have an Experian score of 999 with 3 credit cards with a combined limit of over £45k. Before we acquired our mortgage I had the same cards albeit with a lower combined limit (~£30k) and it didn't trouble our mortgage company.

[craigjm]

An Experian score is only a factor in the lending decision (and may not be at all if the lender uses a different reference agency). You can have a score of 999 in theory and still be turned down for credit for lots of other reasons.

[djc206]

craigjm said:

An Experian score is only a factor in the lending decision (and may not be at all if the lender uses a different reference agency). You can have a score of 999 in theory and still be turned down for credit for lots of other reasons.

I'm sure you can but I never have been. I'm sure if I started loading those cards up obtaining credit would become harder but I doubt their existence is of much concern to anyone when they're being paid off every month.

[craigjm]

djc206 said:

craigjm said:

An Experian score is only a factor in the lending decision (and may not be at all if the lender uses a different reference agency). You can have a score of 999 in theory and still be turned down for credit for lots of other reasons.

I'm sure you can but I never have been. I'm sure if I started loading those cards up obtaining credit would become harder but I doubt their existence is of much concern to anyone when they're being paid off every month.

But look at it from a lenders point of view..... you have the ability to take 30k credit and currently its at zero. If they dont take that into account at all in some way or another you could be granted a mortgage that takes you up to your neck in repayments and then immediately go and max out all of those cards.

Everything is taken into account but to different extents by different lenders

[djc206]

craigjm said:

But look at it from a lenders point of view..... you have the ability to take 30k credit and currently its at zero. If they dont take that into account at all in some way or another you could be granted a mortgage that takes you up to your neck in repayments and then immediately go and max out all of those cards.

Everything is taken into account but to different extents by different lenders

Why would a lender offer me a mortgage that takes me up to my neck in repayments? If the repayments have me struggling then I wouldn't pass the stress test in the first place would I?

[hairyben]

Jockman said:

Use it occasionally, especially on items that would benefit from section 75 cover.

What he said.

Couple of credit cards is a good thing to have, offering a chargeback is a great tool to have when dealing with companies with attitudes, if like me you bank with rbs who seem to see security locking customers cards several times a year as a bit of a giggle then having a couple means you never lose your sole means to pay for things.

[craigjm]

djc206 said:

craigjm said:

But look at it from a lenders point of view..... you have the ability to take 30k credit and currently its at zero. If they dont take that into account at all in some way or another you could be granted a mortgage that takes you up to your neck in repayments and then immediately go and max out all of those cards.

Everything is taken into account but to different extents by different lenders

Why would a lender offer me a mortgage that takes me up to my neck in repayments? If the repayments have me struggling then I wouldn't pass the stress test in the first place would I?

The calculations are not that simple though because you have to take into account so many variables. If youre earning say 3k per annum and have a 500k mortgage that you are paying jointly your payments may be 2000 a month at 2% but then your partner walks away / dies or something happens and all of a sudden you have a 2k bill on 3k salary. You would have to be loaning significantly under your maximum potential to be able to carry 30k in potential credit card debts. "some" institutions would see this as an issue some not. It all depends on their actuarial calculations of risk.

[djc206]

craigjm said:

The calculations are not that simple though because you have to take into account so many variables. If youre earning say 3k per annum and have a 500k mortgage that you are paying jointly your payments may be 2000 a month at 2% but then your partner walks away / dies or something happens and all of a sudden you have a 2k bill on 3k salary. You would have to be loaning significantly under your maximum potential to be able to carry 30k in potential credit card debts. "some" institutions would see this as an issue some not. It all depends on their actuarial calculations of risk.

If someone walks away the house gets sold and they're still liable for the mortgage payments anyway. If they die it gets paid off by life insurance. I wouldn't have been given a £30k credit limit on a £3k salary. Anyway the OP's card has a £5k limit, that's chump change to the big lenders.

Maybe there were a few companies who didn't fancy lending to me but I can't think of any mainstream lender who didn't offer us a mortgage at least 4 times our joint income. So I would encourage the OP not to worry. In addition it's bloody expensive furnishing/decorating etc a new house so the card may come in useful for the first couple of months when he do esbuy.

[craigjm]

djc206 said:

If someone walks away the house gets sold and they're still liable for the mortgage payments anyway. If they die it gets paid off by life insurance. I wouldn't have been given a £30k credit limit on a £3k salary. Anyway the OP's card has a £5k limit, that's chump change to the big lenders.

Maybe there were a few companies who didn't fancy lending to me but I can't think of any mainstream lender who didn't offer us a mortgage at least 4 times our joint income. So I would encourage the OP not to worry. In addition it's bloody expensive furnishing/decorating etc a new house so the card may come in useful for the first couple of months when he do esbuy.

At no pioint was I talking about you, I was speaking in general terms because I have no idea of yours, or the OP's, financial status. A 5k card in the hands of someone on a lowish income is certainly not chump change. Like ive said all along the answer to the OP's question is "it depends" because every lender scores differently and everyone has different financial circumstances. Just as someone can have a 999 experian "score" with an income of 10k, an income of 1m or anywhere in between.