a fairly complicated question about paying off cards and credit scoring

[cjs]

Have done a lot of research and not been able to find an answer to this so all help is appreciated... Sorry this is long. The short question is what is the best methodology to bring up my credit score in the shortest period of time so that I can refinance debt into a home mortgage.

The long version:

Because of a problematic someone who is no longer in my life, I became deeply in debt, missed payments (life was too chaotic), etc. Several accounts were closed at the lender's initiation during this period. Nothing went to collections.

I have spent the past almost two years working multiple jobs to pay down the amount owed (close to 100,000) at the rate of 3 to 4 thousand dollars a month. My strategy is to increase my credit score as rapidly as possible, refinance the house - current loan is at 7.75 and I have almost 300,000 in equity so this is something I should do anyways, and bundle the approximately 60,000 of remaining debt into the mortgage.

OK when I look at credit reports and scores the experian one hasn't budged in the 7 months I have tracked it. Just started on the other two, so don't know how responsive they are to what I am doing.  At least experian is computing the limits on the closed accounts as part of my total borrowing limit and then computing percent credit used off of this total. Am afraid if I pay off the three closed accounts (two credit cards with a 29.9 percent interest rate, one unsecurred line of credit with a much lower rate my credit score will drop because the amount used in the denominator will decrease so i will be using a greater percent of credit. On the other hand, maybe somewhere in the scoring they are taking account of the fact that I owe on closed accounts.

Finally am almost topped out on a home equity loan, since I have only been paying interest on it - lowest interest rate and is deductable from taxes. My initial assumption is that this would be the last one I would pay off. But perhaps it is also hurting the score and I should at least bring it down to 80 or 90 percent of total balance.

[sl]

Welcome!!!

If you don't mind me asking..what are your FICO's? And how many baddies do you have on your cr?  Also what is your utilization.

[cjs]

Transunion and the one through here - 686/experian (the one that hasn't changed in 7 months) 654.

I currently have three closed accounts, all have been paid down to about 50 percent of balance. Two - both from the same lender (Chase - it bought out both cards which had been issued by separate lenders) have 29.95 percent interest rates. The other is an unsecurred line of credit from my bank.

I have one open credit card with a very high limit, currently paid down to about 60 percent of balance and a home equity line of credit, which is basically topped out. I also have two open store cards.

I used the store cards but pay them off in full every month. I have used the open credit card only once in the past two years.

[sl]

I would try to get your utility down to 10%.  That counts for about 33% of your fico score.  Also, if you have any baddies on your report, send a GW letter.

Call creditors to see if they will reduce your interest rate.

[Anonymous]

There was an ancient strategy to prevent accounts that have been delinquent being closed by creditors when they have been paid off. It was to overpay them by a few dollars. I don't know if this still works as the strategy goes back quite a few years.

[cjs]

Many thanks for this help. Have tried - they refuse to touch the interest rate since it is closed. But what is a GW letter?

[fused]

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cjs wrote:

Have done a lot of research and not been able to find an answer to this so all help is appreciated... Sorry this is long. The short question is what is the best methodology to bring up my credit score in the shortest period of time so that I can refinance debt into a home mortgage.

The long version:

Because of a problematic someone who is no longer in my life, I became deeply in debt, missed payments (life was too chaotic), etc. Several accounts were closed at the lender's initiation during this period. Nothing went to collections.

I have spent the past almost two years working multiple jobs to pay down the amount owed (close to 100,000) at the rate of 3 to 4 thousand dollars a month. My strategy is to increase my credit score as rapidly as possible, refinance the house - current loan is at 7.75 and I have almost 300,000 in equity so this is something I should do anyways, and bundle the approximately 60,000 of remaining debt into the mortgage.

OK when I look at credit reports and scores the experian one hasn't budged in the 7 months I have tracked it. Just started on the other two, so don't know how responsive they are to what I am doing.  At least experian is computing the limits on the closed accounts as part of my total borrowing limit and then computing percent credit used off of this total. Am afraid if I pay off the three closed accounts (two credit cards with a 29.9 percent interest rate, one unsecurred line of credit with a much lower rate my credit score will drop because the amount used in the denominator will decrease so i will be using a greater percent of credit. On the other hand, maybe somewhere in the scoring they are taking account of the fact that I owe on closed accounts.

Finally am almost topped out on a home equity loan, since I have only been paying interest on it - lowest interest rate and is deductable from taxes. My initial assumption is that this would be the last one I would pay off. But perhaps it is also hurting the score and I should at least bring it down to 80 or 90 percent of total balance.

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Fixing your problem will be easy as long as you have some cash on hand. A few facts to know before I offer any advice.

Open and closed accounts are weighed equally. That is they age the same and this aplies to average age of accounts and credit length history. Also, closed CC accounts with balances do factor in utilization percentage calculations (very bad) whereas closed CC accounts with $0 balances do not.

What are the CLs and balnces on all of your open and closed revolving accounts including the unsecured line of credit with your bank? How much cash do you have on hand to pay down these accounts?

Message Edited by fused111 on 09-01-2007 10:57 AM

[cjs]

My estimates in the earlier answer were slightly off

1. home equity loan owe 29,000 from a 30,000 limit

2. unsecurred closed equity line - owe 4687 - 12,000 limit interest rate 13.29%

3. two closed chase credit cards (both 29.98% interest rate)

                              owe 4,482 9,000 limit/ 10,152 14,000 limit

4. open credit card owe 13,440 from 25,000 limit 17.24% rate on charges and 23,24 on the 5,000 portion which is cash advance.

I currently have 8,000 to pay on these. Thereafter will continue approximately 3,000 a month until I refinance.

The FICO presumably is because I now have 19 months of absolutely clean payment record and have paid down a considerable amount. I was at the limit on everything 19 months ago.

Message Edited by cjs on 09-01-2007 11:52 AM

[fused]

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cjs wrote:

My estimates in the earlier answer were slightly off

1. home equity loan owe 29,000 from a 30,000 limit

2. unsecurred closed equity line - owe 4687 - 12,000 limit interest rate 13.29%

3. two closed chase credit cards (both 29.98% interest rate)

                              owe 4,482 9,000 limit/ 10,152 14,000 limit

4. open credit card owe 13,440 from 25,000 limit 17.24% rate on charges and 23,24 on the 5,000 portion which is cash advance.

I currently have 8,000 to pay on these. Thereafter will continue approximately 3,000 a month until I refinance.

The FICO presumably is because I now have 19 months of absolutely clean payment record and have paid down a considerable amount. I was at the limit on everything 19 months ago.

Message Edited by cjs on 09-01-2007 11:52 AM

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When do you plan to refi?

[cjs]

As soon as possible. My hope was to get the fico to 700, but I need to do it before Jan. when I will no longer be working as many part time jobs (in addition to my full time one) in order to pay this off.