Q: Cudos for getting it right about how lowering a card limit would lower a credit score.
What wasn’t right was the statement about “lenders get concerned when someone has five to 10 credit cards, each with $10,000 to $50,000…”
The truth is lenders don’t analyze nowadays a credit report as you purport. If the FICO score is above Freddie or Fannie’s minimum, the loan gets approved and the paper [also known as the mortgage] can (and generally is) sold on the secondary market.
The vast majority of US consumers have no business having more than one credit card with a $5,000 limit, so your comment was responsible from that standpoint, but somewhat naive from the lenders viewpoint.
A: You’re right about one thing — most lenders only care what credit score a prospective borrower has. The possibility that a borrower might go on a spending spree and binge on credit just before closing on a house isn’t always top of mind.
However, many quality lenders will pull a second copy of the borrower’s credit history and credit report just before closing, to make sure the numbers and lending ratios haven’t changed much since the application was processed.
I do know some lenders (particularly those that plan to keep the loan in their own portfolios) will take a closer look at a prospective borrower’s credit history, including the number of cards and the maximum available credit limit, if only to better understand what’s behind the credit score.
But I do believe that having too much available credit, especially if you carry a balance that exceeds 30 percent of that available credit, still counts as a negative when credit scores are tabulated.
So, I should have written that sentence more specifically to talk about how having all those credit cards potentially burning a hole in one’s pocket can lower a credit score.
Thanks to all my readers who took the time to write about these issues.