Hi {first_name},

I hope that you are doing well. I wanted to follow up with you and send you another mortgage financing and credit tip. This applies to you whether you just finished the pre-approval process or if you are getting ready to become pre-approved.

In this tip, we advise you to not close any accounts, this includes paying off an installment loan that has a low balance. You may be asking yourself, why should I not close any accounts?

Let me explain…

Closing accounts can have a big impact on your credit score. When you close an account, the good credit you’ve accumulated is now gone. Also, a significant portion of your credit score is determined by the ratio of the amount you owe as compared to the amount of the credit limit on open lines of credit. I mentioned this in my last email where we recommend that you refrain from opening any new accounts during the home buying process, but here is similar example using multiple accounts and how closing an account can negatively affect your credit

Here is a ‘nerdy’ example: Let’s assume a person has three open credit cards and two of the cards have balances and one of them does not have a balance:

Credit card 1: $2,500 owed with a $5,000 credit limit.

Credit card 2: $2,300 owed with a $3,600 credit limit.

Credit card 3: $0 owed with a $4,000 credit limit.

Here are the totals: You owe $4,800 and have $12,600 combined credit limit which results in your balances equal to 38% of the total credit limits. Let’s assume that since you don't use it, you decide to close the third account. Once you close that credit card you now owe $4,800 on two cards that have a total credit limit of $8,600 and now your total balance owed is 56% of your total credit limits and your credit scores will go down as a result.