Need Some Advice/Direction

[Anonymous]

Currently my FICO score is about a 650. My gf and I are trying to get pre-approved for a mortgage and would need a 680 for the rate we desire.

I currently have a CC debt of 5300 with a 10k limit and a auto loan for about 15.5k.

I have the money to wipe these out but am wondering if that would be the way to go.  Should I pay large monthly payments to knock these out or should I just pay them off in full right away? Also, if I did pay the Auto loan completely off doesn't that kind of hurt my score since I will no longer have an auto loan under my credit reports. I heard that actually imporves your score by showing lenders you are responsible to have an auto loan.

My credit history is aged about 16 years.

Appreciate any help/direction you can provide.

Thanks.....

[mauve]

Paying the loan won't help your score to a significant degree, but I think when you pay down to about 40% of balance, you should see some improvement.

The CC is another story - you should see a jump for every 10% you pay down of utilization.

However, you may want to consider whether or not this will impact your reserves and down payment / closing cost funding. 

[Anonymous]

Oh believe me I have considered that. Kind of like the devil on one shoulder and angel on the other.  One side says pay it off and I could save that much more money a month and the other says No, don't do it, you'll need the money later...

Not sure what to do.

[mauve]

These payments are also going to factor into your DTI. 

Have you figured out what price range you're interested in?  Are you going conventional / USDA / VA / FHA / etc?

[MBOhio2]

In my opinion, it seems like you would get the biggest bang for your buck by paying your CC debt to below 30% of the limit (based on above, it's currently at 53%). With a 10k limit, this would only cost you about $$2500-3000 and should boost you about 30 points. It's at least a good starting point and then, after your balance is updated next month, you can see where you stand and go from there.

To be a little safer and make it happen quicker, paying it down to less than 10% would give you an even higher increase and would probably secure you above the 680 mark.

[Anonymous]

Supporting what muave said, as well as mirroring other advice I've heard, paying off the credit card will give you a good shot of getting to your goal, or at least very close to it.  My reported utilation has gone from approximately 65% to 35% in the last month, and I received and my TU and EQ FICO's jumped by an average of 28 points.  

[mauve]

I just want to make sure OP is calculating out whether or not this will cut into downpayment funds.  OP qualifies with the current scores, and could see a good boost with paying down the CC, but that cash might be better available as reserves or downpayment for now.

[Anonymous]

how about as far as the auto loan goes?

[mauve]

I wouldn't touch that auto loan until I'd paid off that credit card.  Credit card utilization (and other revolving accounts) is 30% of your score.  The auto loan is an installment account and any boost would be minimal.

If you know that you're going to cut it close with the auto payment reporting, in terms of DTI, perhaps then you should pay off that car if you have the funds and it isn't going to affect your downpayment or reserves.

[Anonymous]

paying down an installment loan does not increase your score.  you do see increases over time when paying a loan, but that is not due to paying down the balances on some % basis, but due to the payment history beeing factored in.  SO, do not touch the auto loan.  Pay the CC down to about 5% or so still showing (if muliptle cards leave one card at less than 9% and leave the rest paid off.  Leave any money you have left in savings as reserves/savings.  If upon looking for homes and applying, there are DTI issues, your LO can arrange to pay off the car loan and deduct it from the DTI figures for approval.  In the end, paying off the CC helps both DTI and FICO so it is well worth the loss of available cash.  Paying the car loan off could hurt your score with the loss of an account  and would be dipping into reserves available(and a partial payment again will not really affect your score)..  I guess by your post you are going conventional (otherwise you will get the same rate with your current score as with a higher one with FHA, etc...  Since you are going conventional, reserves are alot more of a factor.  Most FHA/VA/etc programs do not require reserves.  ALot of conventional loans do.