Rebuilding Your Credit

[antoniusb]

My goal is to buy a home by the end of the year and need to get my FICO up to at least 700 to qualify for the better rates. I have a perfect payment history and "very good" for legnth of credit history. I got "not good" ratings for amount of debt and amount of new credit. 

My credit utilization took a beating due to a combination of temporary increase in the need for credit and losing about one third of my available credit (one $8000 account I had to cancel and other creditors reduced my existing lines.My current credit score reflects an amount of outstanding revolving credit of $20K and I have already been able to bring this down to $12K that is not yet reflected in my scores.

There is a good chance that I will be coming into about $5K in August to help further pay down my debts. I was wondering if someone could give me some advice on which of the various creditors I should pay down with this extra cash to reach my credit score goal of at least 700 by Nov 1.

Bear in mind that I really do not want to pay down my low interest loans past the point where it will have a demonstrable impact on improving my credit score. What are the sweet spots for credit utilization for total revolving credit and individual accounts? I know there is a break at 50% utilization on an individual card but I dont know if there are other threshold levels between 0% and 50%. Also, how far down would I need to get my car loan to make an improvement in my credit score?

Your help is much appreciated

                    Line        Used             %Utilized                 Comments  
CC1          $10,000       $150                1.5%                           high interest  

CC2            $8,000     $1,200              15.0%                          low interest purchases only

CC3            $7,500     $3,022              40.3%                         0% BT rate for life of loan  

CC4            $6,000     $2,555              42.6%                         0% BT rate expires Nov09  

CC5            $4,400     $4,065              92.4%                         3% BT rate for life of loan  

CC6            $2,100     $0                      0.0%                         high interest  

CC7            $1,000     $1,000             100.0$                          3% BT rate for life of loan    

Total         $39,000     $11,992            30.7%                          

LOC1         $8,900      $2,433              27.3%                         moderate interest  

LOC2         $5,000      $0                     0.0%                          high interest    

Total         $13,900      $2,433             17.5%                

CC + LOC $52,900      $14,425           27.3%    

Auto          $16,738     $14,520           86.7%    

[sidewinder]

For the most FICO points when it comes to revolving util, you want--

Overall utilization between 1% and 9%

Individual utilization between 1% and 9%

No more than half your accounts reporting a balance

Utilization = Balances/CL

Installment utilization counts for very little of your score compared to revolving utilization.

[franboyd]

Why not go FHA which has as good of interest rates as a conventional loan and will accept your 670 score?

[antoniusb]

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franboyd wrote:
Why not go FHA which has as good of interest rates as a conventional loan and will accept your 670 score?

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Are you saying that if I go FHA that I will get the same rate with a 670 score as I would with a 700 score? I just figured that getting above 700 would save me considerable money over the life of my loan. Please inform me if I can get a FHA loan at the same rate with a 670 FICO as I would be able to get with a 700+ from any other source.

[antoniusb]

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sidewinder wrote:

For the most FICO points when it comes to revolving util, you want--

Overall utilization between 1% and 9%

Individual utilization between 1% and 9%

No more than half your accounts reporting a balance

Utilization = Balances/CL

Installment utilization counts for very little of your score compared to revolving utilization.

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Thanks Sidewinder,

In the event that I cannot get individual credit cards below 10%, is there some other magic number out there that I should be shooting for? I know that getting below 50% on a individual cc is supposed to give your score a boost but is there another sweet spot out there between 10%-50% to target as a util rate?

I did look through the archives for break points on util rate and it seems very unclear whether there is a magic number out there within the 10%-50% range. Given that it is unlikely I can get each of my CC's under 10% within my 4 month timeline, I dont want to throw money into knocking down the balances on my existing lifetime 0% and 3% loans without any payoff in the form of improved FICO.

[franboyd]

Yes, your interest rate will be the same whether you are a 670 or 700.  That's why FHA is the way to go for most consumers.

[RobertEG]

Dont pay down the auto loan.  It is installment credit, and has little impact on credit score.

Put money into CC 5 and CC7.  Overall & util counts, but so does % util on indiv cards.

You are maxed out on CC7, which I would suspect is the biggest killer in your credit score now.  CC5 is not far behind.  I woould pay them down first, for max.  FICO impact.

Also, many LOC accounts report to the CRAs as revolving credit.  How are they reporting?

Message Edited by RobertEG on 06-16-2009 12:12 PM

[antoniusb]

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franboyd wrote:
Yes, your interest rate will be the same whether you are a 670 or 700.  That's why FHA is the way to go for most consumers.

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And is the FHA competitive with other lenders? Can I get the same rate as I would with another lender with a FICO of 700? What if I were able to increase my score to 720, would FHA still be competitve? I would be putting at least 20% down with a loan amount between 140K-160K. The FICO simulator said I could get my score up over 720 if I pay down $14,500 from my existing balance (which is doable) although it was a wide range (690-730).

[antoniusb]

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RobertEG wrote:

Dont pay down the auto loan.  It is installment credit, and has little impact on credit score.

Put money into CC 5 and CC7.  Overall & util counts, but so does % util on indiv cards.

You are maxed out on CC7, which I would suspect is the biggest killer in your credit score now.  CC5 is not far behind.  I woould pay them down first, for max.  FICO impact.

Also, many LOC accounts report to the CRAs as revolving credit.  How are they reporting?

Message Edited by RobertEG on 06-16-2009 12:12 PM

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The LOC is reporting as a revolving account so that should help my total utilization.

If I pay down CC5 and CC7, do I need to go down to 50% or will I get a boost somewhere between the current level but above 50%? I could also try to get an increase but both these cards recently had the lines reduced so I dont know how successful I will be with that effort.

I really hating cash into paying down those low rate lifetime loans but it would be worth it if it will get me a lower mortgage rate.

 

[sidewinder]

It is said, whether it is true or not I don't know, that you'll see an increase at each 10% breaking point. Such as once you break 50%, you see a increase. Again when you break 40%, 30%, etc. I remember seeing this somewhere, but not sure how true it is and whether it goes from overall util, individual util, or both.

Check over on the UFS board for more information.

As for FHA, I've seen/heard of many people in my area closing FHA at 5%- 5 1/2%.