Paying Down Credit Cards to Secure Mortgage

[simyengi]

My father is giving me a gift of $6500 to help pay down credit cards to get the balances owed under 30% of what's available. All of my wife's credit cards are open and in good standing, while two of the four cards I possess are closed and hurting my credit utilization. One card's balance is $966 and the other is $1945. Which accounts should I tackle first, the open or closed ones? Or should I bring all of the balances to less than 30%

A second secured card I opened last month should be reported in August, which could help my score. We plan to apply for a mortgage in October and I need 46 points to safely qualify for the mortgage needed for the house we want. My wife's score are between 690-700, so my scores are being used for the approval.

Also, any advice on confirming the balances on student loans. They were in deferment for a few months, but the current balance is 7k higher than what I borrowed. The math just doesn't add up to me. 

Thanks in advance for your assistance.

[StartingOver10]

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@simyengi wrote:

My father is giving me a gift of $6500 to help pay down credit cards to get the balances owed under 30% of what's available. All of my wife's credit cards are open and in good standing, while two of the four cards I possess are closed and hurting my credit utilization. One card's balance is $966 and the other is $1945. Which accounts should I tackle first, the open or closed ones? Or should I bring all of the balances to less than 30%

A second secured card I opened last month should be reported in August, which could help my score. We plan to apply for a mortgage in October and I need 46 points to safely qualify for the mortgage needed for the house we want. My wife's score are between 690-700, so my scores are being used for the approval.

Also, any advice on confirming the balances on student loans. They were in deferment for a few months, but the current balance is 7k higher than what I borrowed. The math just doesn't add up to me. 

Thanks in advance for your assistance.

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1) Pay off those two cards first (the one's that are closed with a balance). It is killing your score.

2) What are the balances on your other cards? If you have enough money, pay off one of them to a zero balance and the other one to as close to 9% or less (but not zero) of the credit line that you can. From your post, you may not have enough funds to do this to fully optimize your score. But the most imporant part is to make sure the cards that are closed are at zero balance right away. If you have to make a choice and not pay down the card to zero we would need to know more info, so, what is the utilization on the open cards you have? If we know that, we can help a little better.

3) student loans are installment loans. Make sure they are actually in deferment and NOT in default. It is typical for the balances to increase when the loans go into default, that's why I suggest that you check out your student loans because you have that $7,000 surprise. When was the last time you paid on the student loans? If you are in default, you will need to get them current before you can apply for a mortgage.

[simyengi]

Thanks for this great advice.

1) I was hoping to get everything under 30%, but I see your point. I will shaw this with my wife, as this goes against what we discussed previously.

2) Here are the credit utilization figures for the open cards:

Open Sky - 44%
BoA - 85%
American Airlines - 73%
Dell - 80%
Capital One - 20% still waiting for first statement.

3) The student loans are not in default. The loans are from 2005-2006 and 2008-2010 (grad school). I've been paying on time since 2011 (after graduation).

[StartingOver10]

Any balance reporting over 80% is considered maxed out on your card and your score takes a big hit.

When you have closed accounts with balances, then it is possible to actually use more than 100% of your open credit lines due to those balances so your scores are hit very hard.

What are the credit lines of the cards you listed? Is it possible to pay off the closed accounts and then bring the rest of the accounts to less than 50% each plus pay off the cap one entirely? The scoring formula likes it if you have zero balance cards, there is a boost to your score for zero balance cards (but not all to be zero).

I'm not quite sure I understand about your student loans though. You said they are in deferment, yet you have been paying on time since 2011. Are you paying on the student loans while you are in deferment?

[cclee]

I had high balances on 2 closed cards and they were never considered in my utilization.  I only ever received bumps in scores when I paid down the open accounts.  As a matter of fact, I just paid both of them off a few months ago and got nadda in score bumps.  But paid down a few that were open this month and recieved large score increases.  And i'm pretty sure i've heard before that the closed accounts (even with a balance) are not used to determine your utilization, and that was how it was for my credit report (they never showed in the utilization), I was paying them down for 4yrs, nothing ever changed, and when I just paid them off they were in large chunks, still nothing.

[StartingOver10]

On the FAKO scores the utilization is just open revolving accounts.

On the FICO scores it includes all revolving accounts.

[simyengi]

So, do you recommend paying down all accounts (open and closed) until they are under 30%? If I'm not getting a score bump by paying down the closed accounts. I'd rather pay off the open accounts.

[StartingOver10]

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@simyengi wrote:
So, do you recommend paying down all accounts (open and closed) until they are under 30%? If I'm not getting a score bump by paying down the closed accounts. I'd rather pay off the open accounts.

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No. I am recommending you pay off the closed accounts as those particular accounts are hitting your score very hard.

Then, with the rest of the money pay down what you can on your open accounts. Make sure to pay the one's with the highest utility first (after you pay the closed accounts).

It is possible that the other poster that did not receive a score bump had other issues in his file or the closed account balances were small in relation to the overall open credit limits when they were paid off.  These things are always YMMV.

However, in your case you have large balances that potentially, based on your post, could eat up your entire CL above what you have charged on your open accounts. It's not really possible to know because you didn't give the actual figures. 

In any event, you are getting $6500 to pay down debt and it won't do a whole lot of good if you have a couple of thousand dollars reporting as a balance on closed accounts.

If you really are looking to get yourself in position to buy, then pay off the closed accounts to zero and pay down the open accounts to as low as you can without eroding your down payment funds. Ideally you should be zero balance on all revolving accounts except for one and it should be reporting a balance of less than 9% of the credit limit. However, from your post that option is not yet available to you. So do the next best thing: pay off the closed accounts to zero and pay down the others so all are under 50% and lower. The advice to pay down less than 30% sounds like it came from an inexperienced LO.

[twall06]

www.nslds.ed.gov  that site is what I use to track my student loans. And yes pay the closed ones first they are killing your utilization I got a good bump when I paid my closed accts off. Then I would pay what I could to get them all below 70% then pay off the ones with highest interest rate first just my opinion

[Shogun]

Closed accounts with a balance will kill your util.  I would pay those down first, then start with the others.