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Posts: 175
Registered: ‎06-28-2013
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Credit Card vs. Personal Loan

I need some advice on which account I should focus on paying off first and what will affect my credit score the most.

 

Currently my util is around 25% all of this is on a best buy card that has $3900 left on it. I'm still in a promotional financing offer for 0% until March of '14. I also have a NFCU personal loan that has about $725 left on a original loan of 4k but it's at 16% interest. I have had some recent credit line increases and two amex cards (back dated to '06) that haven't hit my report yet which should drop my util down to about 15% and hopefully help my AAoA. So, should I just pay the personal loan off and avoid the interest or work on getting my overall util down on my revolving credit? The original loan terms where 24 months and it just hit 12 months last week.


Starting Score: 620
Current Score: EQ: 723 TU: 714 EX: 759 (Amex 6/28)
Goal Score: 750
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Registered: ‎09-29-2009
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Re: Credit Card vs. Personal Loan

Paying down your credit card utilization will have the maximum benefit for your credit score. Paying down the personal loan will provide the maximum value for your money management. Are you attempting to raise your credit score for a particular reason such as a mortgage application, etc.? If it is just for personal satisfaction then only you can decide. Additionally the new accounts while lowering utilization will also lower your Average Age of Accounts. And along with the inquiries associated with the new accounts that may actually lower your credit score rather than increase it. The credit scoring formulas bottom lines are very much dependent on your individual profile before any changes and so it is impossible to actually predict how it will turn out for you. The initial advice is simply because of the weight FICO puts towards utilization on revolving accounts vs. balances on installment accounts.

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Contributor
Posts: 175
Registered: ‎06-28-2013
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Re: Credit Card vs. Personal Loan


HoldingOntoHope wrote:

Paying down your credit card utilization will have the maximum benefit for your credit score. Paying down the personal loan will provide the maximum value for your money management. Are you attempting to raise your credit score for a particular reason such as a mortgage application, etc.? If it is just for personal satisfaction then only you can decide. Additionally the new accounts while lowering utilization will also lower your Average Age of Accounts. And along with the inquiries associated with the new accounts that may actually lower your credit score rather than increase it. The credit scoring formulas bottom lines are very much dependent on your individual profile before any changes and so it is impossible to actually predict how it will turn out for you. The initial advice is simply because of the weight FICO puts towards utilization on revolving accounts vs. balances on installment accounts.


I am going through the pre approval process for a VA loan at the end of the month and trying to figure out where my efforts are best served. I know if I pay off that personal loan my overall DTI ratio will lower since that is a $209/mo payment. I was under the assumption since the two amex accounts where backdated to my original member date of 2006 that my over all AAoA should increase because of those two tradelines unless I am under the wrong impression?


Starting Score: 620
Current Score: EQ: 723 TU: 714 EX: 759 (Amex 6/28)
Goal Score: 750
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Re: Credit Card vs. Personal Loan

Is a FICO increase more important or DTI? For me it was DTI since buying a home in the DC area wasn't that cheap. It would all depend on the goal I suppose. You can also do a combo if equally important. I've read that mortgage lenders will largely ignore a loan if you only have 6 months left. You'd have to do some math figuring in the interest, but maybe pay on it to exclude from DTI and throw the rest at CCs.

 

AAoA could potentially increase if it is less than 7 years now. AAoA rounds down to the nearest whole number so you'd have to do some math to see by how much AAoA changes, if at all.

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