Should I avoid credit card use to improve our debt-to-income ratio?
"For scoring purposes, having a DTI between 1-19% is ideal.  From Credit Karma:  That being said, depending on the loan type you looking at receiving (FHA, VA, Conventional, etc), there are certain max DTIs that you want to stay away from. As a rule, for VA, you want to try to stay away from 41% DTI. Exceptions are made for people with sufficient funds in the bank (3-9 months) to go to higher DTIs. If you keep a 19% utilization overall, that will get you a higher score but it will also show that you have a monthly payment on a particular revolving credit account. While the difference between 729 and 745 seems like a lot of points, there are rules as to how the interest rates are determined. So you will find that many banks have the same or similar rates due to recent legislation in Dodd-Frank. In the days of subprime mortgages, this was not the case. Adjustable rate mortgages did not necessarily go away, the servicer just has to make sure that the buyer can weather the full amount once it reaches maturity, not the lower amount. That is what got a lot of people in trouble. From ""how interest rates are set"": Before quoting you an interest rate, the loan officer will add on how   much he and his branch want to earn. The branch or company sets a   policy on how little that can be (the minimum amount the loan officer   adds on to his cost) but does not want to overcharge borrowers either   (so they set a maximum the loan officer can charge) Between that   minimum and maximum, the loan officer has a great deal of flexibility. For example, say the loan officer decides he and his branch are going   to earn one point. When you call and ask for a rate quote, he will add   one point to the cost of the loan and quote you that rate. According   to the rate sheet above, seven percent will cost you zero points. Six   and three-quarters percent will cost you one point. In our example, at 7.125% the loan officer and branch would earn one   point and have some money left over. This could be used to pay some of   the fees (processing, documents, etc), which is how you get a ""no fees   -no points"" mortgage. You just pay a higher interest rate. Where this scoring helps you is in credit card interest rates and auto loan and personal loan rates, which have different rate structures.  My personal opinion is to avoid the use of the credit cards. Playing games to try to maximize your score in this situation won't help you when you are talking about 20 points potentially. If you were at the bottom level and were trying to meet a minimum score to qualify, then I would recommend you try to game this scoring system. Take the extra money you would put on a credit card and save it for housing expenses. Taking the Dave Ramsey approach, you should have at least $1000 in emergency funds as most problems you encounter will be less than $1000. That advice rings true." The answer depends on how much you spend every month. The DTI is calculated using the minimum payment on the balance owed on your card.  Credit card minimum payments are ridiculous, often being only $50 for balances of a couple thousand dollars. In any case, when you get preapproved, the lender will tell you (based on your DTI) the maximum amount they will approve you for. If your minimum payment is $50, that's another $50 that could go towards your mortgage, which could mean an additional $10,000 financed. It's up to you to decide if $10,000 will make enough of a difference in the houses you look at. If you pay it off before the cycle closes it will look like you have 100% available credit.   So if you credit card statement closes on the 7th pay it off on the 6th in full don't pay it when its due 2/3 weeks later. Then after three months of doing that your credit score will go up based on the fact that your debt ratio is so low.  That ratio is 30% of your credit score.  It will help quite alot.
Note: the question is tagged united kingdom, this is a UK focussed answer practices elsewhere may be different). A balance transfer moves your debt from one credit card to another. This can be a good way to get a debt onto a lower (often zero) interest rate.  There will usually be a transfer fee but with a good balance transfer deal the effective interest rate even after taking the fee into account can be very good and there are even some deals with 0% interest and no fee. Indeed if you keep on top of things credit cards are often the cheapest way to borrow. Normally a balance transfer is done to a new card that is applied for specifically for the purpose but sometimes it can make sense to transfer a balance to an existing card. However to take advantage of this you need discipline. You need to make absoloutely sure that you fully comply with the rules of the deal and in particular that you pay at least the minimum payment on time.  You should also be aware that the rate will usually jump up at the end of the interest free period, you could do another balance transfer but assuming you will be able to do that is risky as it depends on what market conditions and your credit rating look like at the time. Ideally you should have a plan for paying off the card before the interest free period expires. In general you should be aiming to pay down your debts. Living beyond your means is very bad and carrying debt long term should only be done if you have an extremely good reason. You should regard the balance transfer as a tool to help you clear your debts quicker, not as a way to avoid paying them. If you go on a spending spree after your balance transfer you will just have dug yourself deeper in debt. See http://www.moneysavingexpert.com/credit-cards/balance-transfer-credit-cards for more on the techniques and the current best cards. "If by ""investment"" you mean something that pays you money that you can spend, then no. But if you view ""investment"" as something that improves your balance sheet / net worth by reducing debt and reducing how much money you're throwing away in interest each month, then the answer is definitely yes, paying down debt is a good investment to improve your overall financial condition. However, your home mortgage might not be the first place to start looking for pay-downs to save money.  Credit cards typically have much higher interest rates than mortgages, so you would save more money by working on eliminating your credit card debt first. I believe Suze Orman said something like: If you found an investment that paid you 25% interest, would you take it?  Of course you would!  Paying down high interest debt reduces the amount of interest you have to pay next month.  Your same amount of income will be able to go farther, do more because you'll be paying less in interest. Pay off your credit card debt first (and keep it off), then pay down your mortgage. A few hundred dollars in extra principal paid in the first few years of a 30 year mortgage can remove years of interest payments from the mortgage term. Whether you plan to keep your home for decades or you plan to move in 10 years, having less debt puts you in a stronger financial position." "Several events will always result in a reduction of your score, including: These will show up in the short term, but I don't think it's worth $40 per year in perpetuity to avoid this. These aren't serious ""black marks"" in the same category as missing payments, carrying too much debt, or foreclosures/evictions, etc. These effects are designed to signal issuers when someone acquires a large amount of credit in a very short period of time, which may indicate a greater risk. If your credit is good and you are using your other cards responsibly, closing the card (given the annual fee) would not cause me great concern if it were me. Since you are so much better of a risk than you likely were in college, you can also call Capital One, ask to speak with a supervisor, and ask them to drop the fee and increase your credit limit. They should be able to easily verify that you meet the requirements for other types of preferred cards they offer, and they should be willing to offer you improved terms rather than losing your business. It is very possible they simply haven't re-evaluated your risk since you initially applied. Also, remember that these types of effects determine only a portion of your overall score. Activity is also a major component. Rather than leaving an unused card open for history and debt-to-limit purposes only, I would also recommend having some minimum level of activity, such as an automatic bill payment, on each card you carry. The effect of using your cards over time will have a significant positive effect on your score. Best of luck!" "It can be difficult when all your disposable income is spoken for.  Your options depend on how good your credit is and how flexible your expenses are.  I don't have all the answers without more details (possibly not then).  However, couple of points of advice: Paying off that credit card debt (and not adding any more to it) is your #1 priority.  You should make minimum payments to every other debt until you have done that because the interest on it will kill you in the mean time.  It is always optimal to pay the maximum to your highest interest debt and minimum to all other debts. 11% doesn't sound very good on your house loan.  You may want to consider refinancing.  That is, if you can get a lower rate.  You may also want to get a longer term loan (if you have enough discipline to use the extra income to actually pay off your credit card and then the put it toward the house when the cards are paid off). Look at options to increase your income, at least temporarily.  Second jobs and such.  When your finances are more in order, you can back off. The debt ""trap"" is behavioral.  We humans tend to increase our spending until we can't any more.  But the reason we can't spend any more is that we have increased our debt until we have no flexible income.  Then we are stuck for a long time and have few options. The only way out (long term) is to change our habits so that we don't increase spending each time we pay down a debt or get an increase to our income.  Financial discipline is the only way to have financial security.  Almost always the first step is to pay off credit cards and stop maintaining a balance (always pay off every card at the end of each month).  Then start paying off other debts from highest interest rate to lowest. This is a hard challenge and one most of us face at some point in our lives.  Good luck!" "I want to recommend an exercise: Find all the people nearby who you can talk to in less than 24 hours about credit cards: Your family, whoever lives with you, and friends. Now, ask each of them ""what's the worst situation you've gotten yourself into with a credit card?"" Personally, the ratio of people who I asked who had credit cards to the ratio of people with horror stories about how credit cards screwed up their credit was nearly 1:1.  Pretty much, only one of them had managed to avoid the trap that credit cards created (that sole exception had worked for the government at a high paying job and was now retired with adult children and a lucrative pension).  Because it's trivially easy over-extend yourself, as a result of how credit cards work (if you had the cash at any second, you would have no need for the credit). But do your own straw poll, and then see what the experience of people around you has been.  And if there's a lot more bad than good out there, then ask yourself ""am I somehow more fiscally responsible than all of these people?""." There are a couple of things to consider.   First, in order to avoid interest charges you generally just need to pay the statement balance before the statement due date.  This is your grace period.  You don't need to monitor your activity every day and send immediate payments.  If you're being really tight with money, you can actually make a little profit by letting your cash sit in an interest bearing account before you pay your credit card before the due date. Second, credit card interest rates are pretty terrible, and prescribed minimum payments are comically low.  If you buy furniture using your credit card you will pay some interest, be sure to pay way more than the minimum payment.  You should avoid carrying a balance on a credit card.  At 20% interest the approximate monthly interest charge on $1,000 is $16.67. Third, if you carry a balance on your credit card you lose the interest grace period (the first point above) on new charges.  If you buy your couch, and carry the balance, when you buy a soda at 7-11, the soda begins to accrue interest immediately.  If you decide to carry a balance on a credit card, stop using that card for new charges.  It generally takes two consecutive billing period full balance payments to restore the grace period. Fourth, to answer your question, using a credit card to carry a balance has no impact on your score.  Make your payments on time, don't exceed your limits, keep your utilization reasonable.  The credit agencies have no idea if you're carrying a balance or how much interest you're paying. To Appease the people who think point four needs more words: Your credit report contains your limit, your reported balance (generally your statement balance), and approximate minimum payment.  There is no indication related to whether or not the balance contains a carried balance and/or accrued interest.  The mere fact of carrying a balance will not impact your credit score because the credit reporting bureaus don't know you're carrying a balance.  Paying interest doesn't help or hurt your score.  Obviously if your carried balance and interest charges push your utilization up that will impact your score because of the increased utilization. Make your payments on time, don't exceed your limits, keep your utilization reasonable and your score will be fine. "good vs ""bad"" debt in the context of that post. At least in the UK this can be a good tactic to reduce the cost of credit card debt. Some things to consider" Don't do debt.  After a few years (I forget how many) the bad history will have rolled off, but by then you will probably have no desire to go back into debt again. If you do want to build up a credit score, then at that point it's essentially the same as starting from scratch.  However, from personal experience, once you've lived debt free for a few years you never want to get back on the debt wheel again. A credit score is the output of a behavioral model that indicates the chances that a bank will earn money from your business. Do things that earn the banks money and you will have a high credit score.