08-03-2012 08:50 AM
Once upon a time, while credit flowed freely, my husband and I were known to partake of the feast. However, the famine has hit, and now we are still in the process of raising the score, while paying for that feast! Last year sometime, we closed all but 2 credit accounts. Not really realizing the impact on our scores. So now, for the last 7 months, after our first denial, I have been educated by the many people on these boards. I used an overtime payout to pay off a credit card and what I thought would have been a slight increase to the score, was actually a huge drop. Apparently although closed, the credit limit was still reporting, so paying it off we lost available credit?? Does this make sense? I only saw losing a huge monthly payment. But we both took the hit as it was a joint account.
We are working with a banker for "challenged credit consumers" to get a conventional loan, to buy hubby's boyhood home and 35 acres. Due to the market, it truly is a steal. We were given an ultimatum two days ago to make it happen or move out. We currently rent it. Our backup housing option disappeared in the last week as the last unit was secured. The plan is conventional now, refinance in January when we would have 12 mos clean credit. He told me this morning as our file went into underwriting, not to change a thing.
Do I even attempt to pay off any more closed credit cards, or just nurse them until after we refinance? Or will my new pay on time credit habits off set the drop if I pay off a closed card? Or do I just focus on the 2 open credit cards and LOC to bring utilization down? Although scores are inching up since our original denial, we need every +1 we can get!!
08-03-2012 07:43 PM
From my experience, paying down your current credit cards will have the most significant (and timely) impact. I went from a 587 (lender pull - ouch!) to a 631 just by paying down my credit cards! It's higher now that I've gotten an old collection removed. I know it will be different for everyone, but I can attest that it does add points. Also, I just responded to another post sharing my experience about utilization. I read in the rebuilder forum that you should pay one down to 1-9% and pay the other one(s) off. That's exactly what I did to get that increase in points. As far as the closed accounts, I apologize that I can't help you with those.
08-06-2012 02:48 PM
I would try to pay down all cards so that they are at least under 80% utilization ASAP, if there are any that high.
If there are any open accounts with small balances that could be paid off quickly, I'd do that next.
Then, I'd take the monthly payments from the paid off accounts and use them to work on paying down the cards with the highest interest rates first. If those accounts are the ones that are closed, then I'd get them down to a very low balance (ideally less than 10%, depending on the limit), but not pay them off entirely, so that they still counted in my utilization. Most cards have at least a $25 monthly minimum payment, so make sure you can make that payment without entirely paying them off, for as long as you need to keep them open.
If interest rates were similar across all accounts, I'd start with the smallest balances first, and then apply the monthly payment from each open one you zero out to the next one.
Once my open accounts were paid off, then I'd pay off the remaining closed accounts. At that point, you could let one open account post a small balance (9% or less seems to be the recommendation).