@Anonymous wrote:
Credit card debt level actually doesn't really affect DTI all that much, unless it is causing your lenders to report a higher minimum payment than they would if the account had little or no balance. Those reported "required payment"/minimum payments are what is used to calculate DTI along with rent/lease/mortgage and any other installment loans (i.e., student loan payments)
It does affect your score, though, in the utilization department - which is 30 percent of your FICO score. The only thing that affects your score more than utilization is payment history (35% of your score). At any moment in time - when lenders pull your credit and calculate your score - if your balances on credit cards are higher than about 30% across the board, your score at that moment will suffer for it. This means that if you have three $500 cards (a total limit of $1500) and you have more than $450 balance reporting, total, you have crossed the 30% threshold and your score has accordingly been negatively affected.
This is why you see folks talking about "best scoring" practices right before applying for credit like a car loan - the ideal is to have all cards reporting zero balance except one, which is reporting under 10%. So in the above scenario, that means with three $500 cards, having two with $0 balance and one with less than $50. That is the best possible scoring arrangement - the situation that will yield the best possible score on utilization. Oddly enough - many things in FICOland are odd, after all - having all of your accounts paid off with $0 balances actually isn't ideal in terms of scoring for a lending application.
You're absolutely right that it is good to pay down your principal and eliminate negative equity, especially if you have piled on mileage or otherwise affected book value on your current vehicle - but you will need to consider the credit card debt levels too, if you want to optimize your score for applying for a new loan. As you've seen, rolling high amounts of negative equity into a new loan can affect the interest rate you can get on a new deal, but so can your FICO score. So it's going to have to be a balancing act if you want the optimal result - paying down enough of your car note to achieve minimum negative equity, and still paying down credit card utilization to improve your FICO.
That's what I thought, I just wanted to open some disussion about it.
After writing that, I feel even stronger about paying down the negative balance. Based on DTI, FICO Scores and Payment History the current approved amount is about $20,000
Credit Card Balances do impact FICO scoring, but payment history and no negative marks like a repo is what impacts FICO Auto Enhanced Scores.
By month's end my CC balances will be 0,0,0,0,200
It won't change my Fico Auto Enhanced however, only the exclusion of the repo at the end of next month will do that.
Now if my calculations are right I might be able to lease since the total lease amount is around what banks are limiting me to ($20,146). Still requires me to pay the negative balance. at least some of it.
If true about Tiers, I might not get Ford's best money factor (interest rate for a lease) but that might not be as important since my payments would be inline with DTI.
