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Posts: 2
Registered: ‎04-08-2013
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Debt Repayment and FICO Score

Question:

 

Like many others, I need to get out of debt and I need help understanding the best way to do that with the greatest saving and impact to my FICO score.  Recently my FICO score took a huge hit from 747 to 657.  My student loans were delinquent nearly 8 months, simply because I did not know they had gone into repayment and relocated after grad school never having received a single bill.  They were being sent to my parents house and instead of telling me, they simply stacked them away in my old bedroom.  Needless to say, I never paid.  When I found out, I immediately called consolidated, and put them into forebearance until I can figure out the best plan of attack.  

 

I have a ton of debt for various reasons.  Anyhow, I now have some extra money per month $500 to pay in addition to my base payments.  WHat I would like to know is if I should use that money to pay an unsecured personal loan in the amount of $10,865 with an interest rate of 18% or if I should put that towards credit card payments.  I have 3 cards total as follows:  #1: 3,610 @ 13.24% #2: 5680 @ 9.24% #3: 19,964 @ 7.9%.  

 

Which debt should I pay first to help raise my score while still saving money from interest?

 

Thanks in advance for all your wisdom and advice.

Established Contributor
Posts: 650
Registered: ‎03-01-2012
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Re: Debt Repayment and FICO Score


RoRa wrote:

Question:

 

Like many others, I need to get out of debt and I need help understanding the best way to do that with the greatest saving and impact to my FICO score.  Recently my FICO score took a huge hit from 747 to 657.  My student loans were delinquent nearly 8 months, simply because I did not know they had gone into repayment and relocated after grad school never having received a single bill.  They were being sent to my parents house and instead of telling me, they simply stacked them away in my old bedroom.  Needless to say, I never paid.  When I found out, I immediately called consolidated, and put them into forebearance until I can figure out the best plan of attack.  

 

I have a ton of debt for various reasons.  Anyhow, I now have some extra money per month $500 to pay in addition to my base payments.  WHat I would like to know is if I should use that money to pay an unsecured personal loan in the amount of $10,865 with an interest rate of 18% or if I should put that towards credit card payments.  I have 3 cards total as follows:  #1: 3,610 @ 13.24% #2: 5680 @ 9.24% #3: 19,964 @ 7.9%.  

 

Which debt should I pay first to help raise my score while still saving money from interest?

 

Thanks in advance for all your wisdom and advice.



No brainer.  Pay down the CC debt.  First reason.  Doesn't make sense to pay 18% interest. which are higher than your CC interest rates.  #2, while mix of credit matters for FICO score, revolving credit utilization is a much bigger facter.  

 

Pay down the credit card debt.


My Starting Score: EQ: 691 (11/30/11) TU98: 726 (11/30/11)
My Current Score: EQ: 779 (04/22/13) TU08: 835 (06/03/13)
DW Starting Score: EQ: 742 (03/02/12) TU98: 748 (03/02/12)
DW Current Score: EQ: 784 (03/11/13) TU08: 775 (06/03/13)
New Visitor
Posts: 2
Registered: ‎04-08-2013
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Re: Debt Repayment and FICO Score

Thanks so much for your response.  I want to be sure I understand.  I have both an installment loan at 18% and 3 credit cards.  With that in mind, you are recommending I pay the minimum monthly payment on my personal loan and use the extra $500 per month to pay down the credit cards  that have much smaller interest rates as this will have the most impact on my FICO score? is this understanding correct?  I want to make sure I do this right!!

 

Thanks so much

Established Contributor
Posts: 754
Registered: ‎11-20-2012
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Re: Debt Repayment and FICO Score

My thoughts: Paying off the installment loan makes sense from an interest perspective, but not from a credit score perspective. The quickest way to get your scores up would be to pay down your revolving accounts. 30% of your credit score is based on utilization of your revolving accounts. So the fastest way to get a score boost is to pay those down to less than 10% of your available credit.

 

http://ficoforums.myfico.com/t5/Rebuilding-Your-Credit/Your-Guide-to-Credit-Scoring/m-p/718550#U7185...

 

Where is your priority? You can either pay down debt faster, or raise your score faster. You can't really do both at the same time. Unless you are planning a big purchase (need a new car or something), I'd pay off the personal loan first.

 

Something else to consider: if your loans are in forebearance, they're still accumulating interest as well. Be careful there.

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Established Contributor
Posts: 650
Registered: ‎03-01-2012
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Re: Debt Repayment and FICO Score


RoRa wrote:

Thanks so much for your response.  I want to be sure I understand.  I have both an installment loan at 18% and 3 credit cards.  With that in mind, you are recommending I pay the minimum monthly payment on my personal loan and use the extra $500 per month to pay down the credit cards  that have much smaller interest rates as this will have the most impact on my FICO score? is this understanding correct?  I want to make sure I do this right!!

 

Thanks so much


I'm sorry.  I misread your post.  I thought you were thinking about getting an installment loan @18 percent. Didn't realize you already had one.  I agree with the previous poster.  Paying down the 18% loan makes most finanacial sense.  However, if you have a need to immediately boost your score, you'll get more bang for your buck by paying down the credit card debt.


My Starting Score: EQ: 691 (11/30/11) TU98: 726 (11/30/11)
My Current Score: EQ: 779 (04/22/13) TU08: 835 (06/03/13)
DW Starting Score: EQ: 742 (03/02/12) TU98: 748 (03/02/12)
DW Current Score: EQ: 784 (03/11/13) TU08: 775 (06/03/13)
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