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Scott Bilker is the founder of DebtSmart.com and the author of Talk Your Way Out of Credit Card Debt, Credit Card and Debt Management, and How to be more Credit Card and Debt Smart. Send your questions about money, credit, loans, mortgages, or debt, to him at: Scott Bilker, PO Box 563, Barnegat, NJ 08005-0563 or online at: http://www.debtsmart.com/askscott

Scott,

My husband and I are preparing to buy a new home. We want to clean up our credit card accounts to better our chances for a mortgage. We were considering paying off our credit cards with smaller balances using other credit cards. What is better when your credit is being considered for a home loan--fewer credit cards with higher balances or more credit cards with smaller balances? The cards we are planning to pay off we are going to have closed so there are fewer credit accounts opened. Is that a smart move?

Christina

I would have to say that having fewer credit cards with higher balances is going to be "better" in most cases. The reason is because with fewer cards you have a lower amount of available credit and that is certainly a consideration when banks review your credit report, or as I like to call it, your "credit résumé."

Let's look at a few numbers. Say you had three credit cards. Each has a $5,000 limit and a balance of $1,000. At this point you have a $15,000 limit and $3,000 debt. Many mortgage lenders may view that as a possible unsecured debt of $15,000.

By consolidating all that to one card, you'd have a $3,000 balance with a $5,000 limit. That certainly looks more favorable to lenders.

Since you have many credit cards, you also have some options to get great rates! When deciding which credit cards to use to consolidate your debts, be sure to give them a call. Tell them, "I'm consolidating all my debts to the fewest cards possible and closing my other accounts. If you want to keep making money, then you'll need to give me a great rate or else I'm gone!" If the first rep can't do that then ask to speak to their supervisor.

In my opinion, a good rate is 4.9% fixed until it's paid off, 0% for one year, or a 9.99% fixed rate for life on all purchases and charges. Your options will depend on your history with each credit card and their thirst for profitable customers.

When we purchased our house we had 24 credit cards with a total of $24,000 and still got approved for the mortgage! They didn't say a word. The reason is because we've never had a late payment. Paying on time is one of the most critical keys to getting the best deals and having the most credit options.

One more tip. This is the exception for keeping your cash! Don't reduce your debts by paying them off with cash because you'll need that cash for the down payment and closing costs. After you're in the new house, then pay off the credit cards with any remaining cash.

Good luck Christina and please let me know what happens!

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