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.