03-06-2009 03:52 AM
Having a little debate between friends about the best way to pay off credit card balances.
Im preparing my credit to buy a new home and have a few credit card balances. The debate is about the "best way" to pay off my balances in terms of credit scoring.
Lets say I have 3 cards with 2K limit and 2K balance on all - and I have 3K extra to put towards balances.
Would I get the biggest bank for my buck by:
A) Paying 1K towards each bringing them all all to 50%
B) paying one off completely, then chipping away at the other 2?
Thank you in advance
03-06-2009 08:40 AM
For the situation you have posted I would say option A. Overall utilization and individual card utilization is important and maxed out cards look really bad. Keep in mind that there are some "magic" barriers you want to be below and 49% utilization will be much better than 50% (just as 9% is better then 10%).
If this is a real situation I would say that, depending on what else is on your credit reports, you should wait on teh home purchase until you can get at least two of these cards paid off. Ideally the third would report below 9% utilization.
myFICO is the consumer division of FICO. Since its introduction 20 years ago, the FICO® Score has become a global standard for measuring credit risk in the banking, mortgage, credit card, auto and retail industries. 90 of the top 100 largest U.S. financial institutions use the FICO Score to make consumer credit decisions.>> About myFICO