09-23-2012 08:55 AM - edited 09-23-2012 08:59 AM
Two weeks ago I decided to consolidate all but 1 of my credit cards, it will be paid off within 2 months, and 2 loans into 1 loan. I did this based on everything I read stating it would HELP my credit. I got a much lower interest rate on the loan and will save $500 a month in payments by consolidating too. Today I read some of the "FAQS" here with myFICO and one stated that opening up 1 account and paying off several others could possibly HURT my credit because basically I am keeping the same amount of debt just moving it around. Does anyone know if this is true? I figured paying off credit cards, not closing them, and having a loan instead of high credit card balances, AND saving me $500 a month in payments would help my score? Now I am a little worried as I have a score of 759 now but my goal is to INCREASE my credit score not lower it so I can get a mortgage in the near future.
09-23-2012 09:45 AM
Just don't close, but don't use the credit cards you consolidated. That will give you low utilization, because an installment loan isn't counted against utilization. That "should" help your score. The best score comes from having less than 10% utilization but at least one, but less than half the cards showing a balance. You may want to rotate which card you let show a balance each month so lenders don't close any.
759 is a great score already, congratulations! From what I understand, 740 gets you the best mortgage rates. Reducing your payments by $500.00 a month helps your Debt to Income (DTI) ratio which mortgage lenders will look at.
Remember, for a mortgage the score is just an entry point. You will be looked at in detail, even with a strong score.
IMPORTANT INFORMATION: All FICO® Score products made available on myFICO.com include a FICO® Score 8, along with additional FICO® Score versions based on Experian or Equifax data (additional FICO® Score versions based on TransUnion data are not currently available on myFICO.com). Your lender or insurer may use a different FICO® Score than the versions you receive from myFICO, or another type of credit score altogether. Learn more
FICO, myFICO, Score Watch, The score lenders use, and The Score That Matters are trademarks or registered trademarks of Fair Isaac Corporation. Equifax Credit Report is a trademark of Equifax, Inc. and its affiliated companies. Many factors affect your FICO Score and the interest rates you may receive. Fair Isaac is not a credit repair organization as defined under federal or state law, including the Credit Repair Organizations Act. Fair Isaac does not provide "credit repair" services or advice or assistance regarding "rebuilding" or "improving" your credit record, credit history or credit rating. FTC's website on credit.