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Which is worse? High UTL or new personal loan?

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Anonymous
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Which is worse? High UTL or new personal loan?

I got hit big and ugly by the recent rash of HSBC credit limit slashes.  I went from just under 40% utilization to about 75% because of my lower credit limits.  My husband and I intended to get our first home in a couple of months.  My Fico scores ranged from 657 to 685 just prior to all this and my husband's are holding at 720ish.  The change hasn't hit my FICO score yet so I'm not sure how much the higher UTL will drop my score but I'm betting it won't be good...Smiley Mad  If anyone has a guess on the score hit I can expect from that change, I'd love to hear it.  (It's ok, I have plenty of tums for the tummy upset that it'll cause!)

 

I have the cash to pay off the $5k total I have sitting on various cards but I hate to do that because that would eat into my down payment.  Paying off the cards and then saving up a down payment again is always an option but I'd like your input on which of these two options would be less harmful in terms of impact on a mortgage loan in say 2 months.

 

1.  Pay the CC down as I can which means I may have a high utilization when I go to apply for a mortgage loan.

2.  Take out a loan to pay off the credit cards which means I'd have a very new loan on my CR.  (My current history is very good in terms of all my accounts being old.)

 

In other words, I'm looking at UTL % vs. account length history.

 

Please let me know if I can provide more info that is helpful.  I didn't want to write a book for you to read if it wasn't necessary.  Thanks!

Message Edited by mcdonee on 02-21-2009 09:44 PM
Message 1 of 6
5 REPLIES 5
Anonymous
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Re: Which is worse? High UTL or new personal loan?

Pay off the CC as quickly as possible...

 

DO not get a loan.  You will get a hit for the new account and the loan will certainly count higher towards DTI than the individual credit cards.

 

One thing to point out, mortgage companies do not care about utilization as much as you think.  As long as your FICO is at their required level then it doesn't matter that much to them.  75% is high, but you were already at 40% so already getting hit on your score.  Unless you are talking about paying them way down (under9%) it is not going to make or break you I don't think.  Also, if you pay off your cards slowly, you might just get CLD all thew way down as you pay them keeping your utilization high.

 

If you are sure you are going to buy this year I would do the following:

 

Pay off the credit cards with cash.

Adjust tax withholdings at work ASAP to account for the 8K in tax rebate you are going to get next year.

Use "extra income" from tax withholdings to rebuild dwon payment.

 

 

 

Message 2 of 6
Anonymous
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Re: Which is worse? High UTL or new personal loan?

What type of loan are you looking for when you go to purchase a home? FHA only requires 600-620 score and 3.5% down. Conventional without PMI would require 20% down and higher scores... 680+ i think it what's best.

 

IMO, a score doesn't do you any good if you don't have money for a down payment. I'd be very careful about depleting your cash if it's avoidable. I made this mistake thinking we needed out scores in the 700s to buy a home. Turns out we were going with FHA loan so i spent thousands paying off our credit cards for nothing and now we're feeling the cash pinch for down payment and closing costs.

 

Before your question can be answered, you should think about what type of loan you're looking at and what price range of a home (to estimate cash needed for down payment and closing) Smiley Happy

Message 3 of 6
Anonymous
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Re: Which is worse? High UTL or new personal loan?

Under the circumstances, I think we'll end up going FHA.  If we go that route, we're only about $1k shy of the required down payment.  I used the estimating tool on this site and plugged in "max out my credit cards" to get a worst case scenario.  It showed my FICO dropping up to 60 points which is a bit scary!  That's why I thought that taking a loan to pay off the credit cards might be an option.  I can't really afford to take a FICO hit of more than 40 points and I know that UTL figures heavily into my FICO.  I ran DTI with an estimated loan payment added and it didn't push me into the danger zone there.  These are the things I'm pondering:

 

1.  Is the decrease in FICO due to new loan < Increase in FICO by lowering UTL to 9%? 

(ie, is the net impact good or bad)

 

2.  Would a new loan scare my credit union too much?  I mean, it can't look good...

 

I appreciate the input.  I've been repairing my credit for a couple of years now.  I think I'm just having a hard time because I feel like I'm watching my home ownership goal slip away just as I thought I was getting there.  It really is too early for me to panic since I haven't seen the decrease hit my CR yet lol. 

 

Message 4 of 6
Anonymous
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Re: Which is worse? High UTL or new personal loan?

I know exactly how you feel, you're certainly not alone if that helps any Smiley Wink

 

Have you considered talking to lenders? You can tell them your situation without actually starting the preapproval process (ie. make it clear you do NOT want your scores pulled). If the lender is a good one, they will be more than happy to help you plan this out in the best possible way. Just make sure you're completely forthcoming with everything. I'd highly recommend a local lender that you will have easy access to. I've found some of the banks and larger lenders will tell you anything (just to have it fall apart at the last second) and they're not always great about returning calls/emails promptly.

 

I didn't have any friend/family referrals so I googled "mortgage lender" with my city and state and got a list. I visited their websites to get a feel for them and emailed a few from the 'contact us' section of their website (I didn't fill out prequal or preapproval forms - just basic email without any personal info). By morning one lender contacted me back so i replied in email with a couple of questions about our situation. He responded again immediately and i knew he'd be good for me. I'm high maintenance! LOL

 

Message 5 of 6
Anonymous
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Re: Which is worse? High UTL or new personal loan?

Oh and i forgot to mention... my husband and I have a $5000 debt consolation loan right now and we were preapproved FHA without trouble. They didn't mention it all short of the payment in regards to our DTI. The loan was about 6 months old when we went for preapproval. I don't recall taking a huge hit on our scores when we applied for the loan either. But, just to be sure, i'd contact a local lender to get their advice before making a decision either way. Hindsight can be vicious Smiley Wink
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