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Best way to reduce utilization

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Anonymous
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Best way to reduce utilization

Hi all, 

I have multiple credit card account with high balance on them. 

My current utilization is 15% with my score now 688 by cap1. 

I'm planning on applying to a personal loan or line of credit with penfed or my local bank tdbank to pay off the credit cards to 0.  

My question is will this help improve my score or will this plan go against me. 

I plan on focusing on the loan and pay it off as fast as I can. 

 

Total cc debt $8k (mostly from new baby and moving)

 

I welcome any advicell to enable me rebuild my credit. Thank you all. 

Message 1 of 4
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Anonymous
Not applicable

Re: Best way to reduce utilization

Pay off all interest-bearing balances (that is, "old" charges).

Paying all accounts to zero will actually hurt your score, especially since your current level is relatively low.

You need to leave a small amount on one card - but if all of the charges are "old" ones, then pay them all off and re-charge one card for a small amount, to avoid having a zero balance but also avoid paying any interest.  Then pay off that small charge once it reports, before interest accrues, and repeat.

 

It is beneficial to pay off all of your "old" debt to eliminate interest.

It is a temporary score hit to have all accounts reporting zero - that hit will go away once you have less than 10% reporting on one card.

The key is to make sure that less-than-10% amount gets paid off each month before it incurs interest, and then you re-charge something similarly small to keep the  balance reporting on one card at less than 10%.  Many people use Netflix memberships or something similar to that, a small monthly bill payment, to keep their small balance reporting, then pay it off immediately after the statement cuts to avoid interest.

Message 2 of 4
righthererightnow
Frequent Contributor

Re: Best way to reduce utilization

That's a trickey question. Won't gettting a loan result in a hard pull of your credit (an inquiry which will ding your score a little), also.. will freeing up space on your cards tempt you to use them again? I ask because I'm fighting a similar problem, and I've chosen to just focus on paying as I can (little by little).




Message 3 of 4
Anonymous
Not applicable

Re: Best way to reduce utilization


@Anonymous wrote:

Hi all, 

I have multiple credit card account with high balance on them. 

My current utilization is 15% with my score now 688 by cap1. 

I'm planning on applying to a personal loan or line of credit with penfed or my local bank tdbank to pay off the credit cards to 0.  

My question is will this help improve my score or will this plan go against me. 

I plan on focusing on the loan and pay it off as fast as I can. 

 

Total cc debt $8k (mostly from new baby and moving)

 

I welcome any advicell to enable me rebuild my credit. Thank you all. 


Yes, as a general rule, it will help your scores. It may also help your budget if the interest is signifigantly lower than your cards. However, as others have pointed out, there will be the temptation to use the cards again and run them back up.

Message 4 of 4
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