Confused??? Pay down debt or just get under utilization amount? Trying to qualify for a mortgage.

[2alex150]

Hi everyone,

I'm new and have been learning all that I can on how to clean up my credit as I'm trying to buy a house through the NACA program at the end of this year. With that said, I have been paying off or down my debt, addressing the few collections account and increasing my savings. Recently, I paid off my PayPal account and my equifax score lowered by 12 points. So I called myfico c/s and was advised that I should keep a few dollars on my accounts, and just keep my utilization low versus paying my debt off completely. Honestly, I would like to pay everything off and after I get a house use my credit responibly by only charging what I can pay off in a month.  Soooo do I just keep paying off everthing and not worry about the fluctuations of my credit score or do I just pay my debt down to under 30% of my CL and focus more on savings? Also has anyone used NACA? How was your experience? I'm in the prequalification phase.

Thanks!

Alexandria

[Anonymous]

Pay in full all but one revolving account. Allow one account to report a small balance of 1-9% of its limit. You should have one installment account, either a student loan, auto loan of small personal loan (secured is fine). If you have more than one pay them off if possible, to improve your DTI.

[2alex150]

Yes, I have a student and auto loan and a few bank cards (chase and capital one). I will contine to pay off others (store cards) to improve DTI  I was just throwed off when the fico rep sugguested I keep cards open with small balance when I prefer to be debt free as much as possible aside from student loans, mortgage and car payment.

Thanks for your response!

Alexandria

[Anonymous]

Credit scoring is a very nasty game. Sometimes I think it's more about how likely you are to make banks money rather than how likely you are to pay on time.

[2alex150]

Yes it is...but we have to play the game.

.unfortunately.

[StartingOver10]

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@2alex150 wrote:

Yes, I have a student and auto loan and a few bank cards (chase and capital one). I will contine to pay off others (store cards) to improve DTI  I was just throwed off when the fico rep sugguested I keep cards open with small balance when I prefer to be debt free as much as possible aside from student loans, mortgage and car payment.

Thanks for your response!

Alexandria

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It is better to have all revolving at zero except one cc account - and its balance should be between 1% to 9% of its individual limit like suggested by a poster above.  Maybe the rep didn't quite understand your question

Anyway, you are right about being debt free - that is the best position for all of us, but the scoring system wants us to use credit. Does seem like a conflict doesn't it? I remember when I first heard that you were only supposed to use less than 9% of one credit line and the rest to be zero - I thought the whole board was nuts! Now I know its just the system that is that way...lol

[2alex150]

Lol..I know its crazy but I will def work towards the one card use as these last 20 years I have not use my credit wisely due to ignorance..Im grateful for this site and have a better understanding on why I always got lousy rates when financing. Even when paying on time I was maxing out my credit lines..and eventually it caught up with me and now I have some lates and a few items go to collections but im now going thru the process of rebuilding my credit and educating myself along the journey.

Thanks for your input!

[Anonymous]

Hi 2alex150

I agree with what everyone else is saying. Seems like you are on the right path to getting your home. I just started the NACA program two weeks ago and currently gathering everything the counselor needs so that I may submit them for review. I'll keep you updated with my experience! Also I am in OHIO

[Anonymous]

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@Anonymous wrote:
Credit scoring is a very nasty game. Sometimes I think it's more about how likely you are to make banks money rather than how likely you are to pay on time.

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You are right, its also about making the banks money - BUT - there are smart ways of doing that and there are "not so smart" ways of doing that. With Credit Cards, the smart way is via vendor fees, rather than interest. That means using your cards for every day expenses, wherever possible, and paying it off, leaving a small balance to carry over on the one card. Banks would much prefer to make their money on vendor fees rather than interest on a balance. There is very little risk that way. Amex historically made tons of money that way...

[2alex150]

Awesome...yes please keep me inform. Im in the pre-qualification stage..so im working on the issues and keeping my paperwork updated. My counselor is ok so far, I think like most she is handling alot. I also found a bunch of old Naca comments, I think under the mortgage board..so u may want to check it out to gauge what others have been through and i keep u inform on my journey as well..im due to be qualifed by end of this year.