[Cecil Terwilliger]

Originally Posted by Kavy

Good morning,

When typing this email out I sort of went off on a tangent on why I want a specific card, so I hid it as to not waste peoples time:

Spoiler!

I am trying to get the most bang for my buck from my credit card. I am currently with RBC I Rewards. I get 1 point for every 2 dollars I spend. It is difficult to compare travel cards to reward cards to cash back cards, so I try to scale everything to how much bang for the buck I get. I.e., with travel rewards, 100 points give me $1, so i get 0.5% cash back, but restricted to only travel.

The Aviaon card from RBC gives 1% cash back, but restricted to travel and I believe you have to use there redemption schedule, meaning if you find a better deal then the max purchase price of a ticket (which is the 1%), the bank still charges the same amount of points for the tickets.

So I decided I wanted a cash back card, money is better then rewards. Based on my spending habits, the Scotia $99 cash back card is the best for me and I was wondering if people could clear up a couple credit rating misconceptions for me:

• According to Wikipedia (for the US), the age of your credit affects your credit rating. The age is dependent on your average age of credit open, and the oldest account you have on your credit report. I am switching banks, so my plan was to use the new cash back card as my primary, but leave the old account active to keep my "credit age" as old as possible. Does this make sense?
• I was going to lower my old credit card limit to $1000-$2000 to reduce my open credit. However, I read that having large credit over a long peorid helps your rating. My plan would be to lower it prior to getting pre approved for a bank mortage. Does this make sense? Does haveing credit you don't use hurt the rating?

Thank you!

Kavy

The first one is a little tougher to answer. What I can say is that new credit that has just recently started reporting won't be as beneficial as if you had credit for say 10 years. So I guess the answer is yes, the age of your credit is a good thing.

I can't say for certain if leaving the older card open is going to help. It might be more important of when you first started reporting, not the specific age of your individual credit facilities. Even I'd have to ask someone with more experience on how credit reporting works to know if you should leave open the old card. It is fairly complicated how they come up with your credit score.

As for the second part, you will find that each institution will view open credit differently, this is in addition to how your credit bureau will be effected by open credit. If you have too much open or available credit your it will hurt your bureau a bit but not too much. Basically a note appears on your bureau that says "too many open credit facilities" or something similar. But it isn't like you're going to go from an 800 to a 600 because of one extra $5k credit card with a zero balance. Always remember, open credit with zero balance is WAY better than credit that is maxed. (this should be obvious) If you have $40k in open credit (be it LOCs or CCs) all with zero balances, that is better than $20k in debt, especially if it is all credit card debt.

Again, each institution will view it differently. I've heard some will take 2-3% of all your available credit (LOCs, CCs) and calculate that into your debt servicing (the calculation we use to see if you can afford the loan you're applying for), some only use the existing balance, some use a combination (limit for CCs, balance for LOCs).

At the end of the day I wouldn't be too worried about a $1-3k credit card being open or closed. If you have four $10k credit cards I would encourage you to close a few, especially if they have large balances. If they're all at zero it won't be too bad but you still might get that "too many open credit facilities warning".

Having too much credit will hurt your rating. Having enough credit that is reporting will help your rating. It is kind of a fine line.

You should be far more concerned with your outstanding debts/liabilities than your open credit. Avoiding collection items, bankruptcy and late payments is also very important. I would also rate your cash flow as more important than available credit. Having an extra CC with a zero balance but a $3k limit that you save for emergencies will be much less important than your cash flow, net worth, outstanding debts etc.

As long as you have good credit history I wouldn't worry about the minor details because a 10 point difference in your credit rating won't be the difference in you getting approved or not, unless you're totally borderline.

I would suggest going to equifax's website and paying $20 to pull your credit right now. Get an idea of what it looks like before you even apply for the mortgage.

Google a debt servicing calculator and run the numbers for your potential monthly payments vs income. Most websites will give you a good breakdown of what to include. There are two debt servicing methods. Shelter/income and shelter plus other debts/income. Both are calculated using monthly payments and income.


If this is your first mortgage and you have RSPs make sure you look at the Home Buyer RSP w/d plan.