Paying off high interest CC w/ low interest loan

Anonymous · ‎02-17-2011

So my wife's credit scores are currently as follows (all FICOs): TU 671, EQ 637 and EX 619. She only has two credit cards reporting and nothing else. A Dell CC and an AT&T CC. The Dell is a $6K limit @ 22.24% APR and a current balance of $5770.32. The AT&T CC has a $20,250 limit @ 30.01% with a current balance of $19,264.71!!! She has a very clean credit report other than 4 unpaid medical collections that are currently in process for deletion.

I just applied for a consolidation loan and if approved could payoff both of these cards and at a MUCH lower intereste rate over the life of the loan.

Here's the catch, the consolidating bank wants any of the accounts they're paying off to be closed. Since these are her only reporting accounts we're thinking of just paying off the rediculously high interest AT&T card and with the $ we're saving by consolidating, paying down the Dell CC ourselves and keep it open. Obviously the end goal is to not pay out so much interest to AT&T and to eventually, within 6-12 months get her scores above 650 across the board. If we payoff and close the AT&T card her scores, I imagine, will plumit, since it's one of only two reporting accounts, plus it's one of her oldest trade lines. We're hoping that we can rebound her scores by getting her a secured CC with our credit union, potentially having her get a small auto loan and maybe some other form of credit so that in 6-12 months her scores will be over 650 so we can qualify for an RD Guaranteed Loan on our first home...

What would you folks suggest for a best course of action?

Anonymous · ‎02-17-2011

@Anonymous wrote:
@Anonymous my wife's credit scores are currently as follows (all FICOs): TU 671, EQ 637 and EX 619. She only has two credit cards reporting and nothing else. A Dell CC and an AT&T CC. The Dell is a $6K limit @ 22.24% APR and a current balance of $5770.32. The AT&T CC has a $20,250 limit @ 30.01% with a current balance of $19,264.71!!! She has a very clean credit report other than 4 unpaid medical collections that are currently in process for deletion.

I just applied for a consolidation loan and if approved could payoff both of these cards and at a MUCH lower intereste rate over the life of the loan.

Here's the catch, the consolidating bank wants any of the accounts they're paying off to be closed. Since these are her only reporting accounts we're thinking of just paying off the rediculously high interest AT&T card and with the $ we're saving by consolidating, paying down the Dell CC ourselves and keep it open. Obviously the end goal is to not pay out so much interest to AT&T and to eventually, within 6-12 months get her scores above 650 across the board. If we payoff and close the AT&T card her scores, I imagine, will plumit, since it's one of only two reporting accounts, plus it's one of her oldest trade lines. We're hoping that we can rebound her scores by getting her a secured CC with our credit union, potentially having her get a small auto loan and maybe some other form of credit so that in 6-12 months her scores will be over 650 so we can qualify for an RD Guaranteed Loan on our first home...

What would you folks suggest for a best course of action?

HOLY:

30% at $19,264= $481 a month in interest ONLY. One one card. Thats a car payment.

Now it is common practive for a institution extending a consolidation loan to ask for the accounts being paid off to be closed. What would stop you from running the card/Credit line up again and then you have 2xs as much debt as you had and payments you may not be able to manage.

being that high in you rutilization is also killing her

I have no idea what your family DTI is, or what yourr circumstance is.

If you as a family could get a better card and do a balance transfer that could help, or a HELOC, or even if you had a 401K that allowed it making a loan from it-if you wanted to keep the card, but honestly I just do not see you all needing a 30% card.

I would Immediately consolidate and close the ATT account. It will still show on your report and she can try to get beter credit as it progresses.

Anonymous · ‎02-17-2011

@Anonymous wrote:
HOLY:

30% at $19,264= $481 a month in interest ONLY. One one card. Thats a car payment.

Now it is common practive for a institution extending a consolidation loan to ask for the accounts being paid off to be closed. What would stop you from running the card/Credit line up again and then you have 2xs as much debt as you had and payments you may not be able to manage.

being that high in you rutilization is also killing her

I have no idea what your family DTI is, or what yourr circumstance is.

If you as a family could get a better card and do a balance transfer that could help, or a HELOC, or even if you had a 401K that allowed it making a loan from it-if you wanted to keep the card, but honestly I just do not see you all needing a 30% card.

I would Immediately consolidate and close the ATT account. It will still show on your report and she can try to get beter credit as it progresses.

I understand why they want the account closed. My concern is what that will do to her score though... That interest rate is shoving it up our unmentionable places with our hands around our ankles! So knowing that if this loan is approved and we payoff and close this ATT account, how can we rebound her scores within 6-12 months? In order to qualify for a mortgage we need her mid score to be above a 650. Obviously the higher the better.

Our current total family DTI (including $550 in rent) is 36%, if this consolidation loan gets approved and we payoff ATT, amung other of my debts, it would put our total DTI at 25%. And if we further pay down the Dell card to a $0 balance, our DTI would drop to 23%. Going for an RD Loan would remove the rent from the debt column and reduce our DTI to 15% before the mortgage (great shape for a sizable home loan). We sat down with a mortgage broker last week and he said we qualify across the board except for my wife's midscore needing to be at least a 650. The consolidation will signifacantly lower our DTI, save us a ton of $ on interest but will initially hurt her scores...

So I guess my main question is, how can we recover her scores to over 650 after this account is closed? Having those 4 unpaid collections deleted will certainly help. Paying down the Dell card to $0 balance will inhance the utilization immensely but she'll only have one open account being reported at that point...

Anonymous · ‎02-17-2011

Can someone move this thread to the "Rebuilding Credit" category?

MarineVietVet · ‎02-17-2011

@Anonymous wrote:

I understand why they want the account closed. My concern is what that will do to her score though... That interest rate is shoving it up our unmentionable places with our hands around our ankles! So knowing that if this loan is approved and we payoff and close this ATT account, how can we rebound her scores within 6-12 months? In order to qualify for a mortgage we need her mid score to be above a 650. Obviously the higher the better.

Our current total family DTI (including $550 in rent) is 36%, if this consolidation loan gets approved and we payoff ATT, amung other of my debts, it would put our total DTI at 25%. And if we further pay down the Dell card to a $0 balance, our DTI would drop to 23%. Going for an RD Loan would remove the rent from the debt column and reduce our DTI to 15% before the mortgage (great shape for a sizable home loan). We sat down with a mortgage broker last week and he said we qualify across the board except for my wife's midscore needing to be at least a 650. The consolidation will signifacantly lower our DTI, save us a ton of $ on interest but will initially hurt her scores...

So I guess my main question is, how can we recover her scores to over 650 after this account is closed? Having those 4 unpaid collections deleted will certainly help. Paying down the Dell card to $0 balance will inhance the utilization immensely but she'll only have one open account being reported at that point...

If you pay this off then nothing will happen to your scores IMO. Once AT&T is closed it will still continue to report for up to 10 years which helps your AAoA (Average Age of Accounts) and credit length history. Now getting a new loan might hurt a few points because of a new inquiry and new credit but closing AT&T should not have any effect.

In some scenarios losing a CL will raise your utilization on any remaining accounts but since both of these are maxed out closing AT&T will still leave the maxed out Dell CC. Right now the overall utilization on both cards is about 95%. Close the AT&T account and the utilization on the Dell will be 96%.

If you want to read more about the pros and cons of closing accounts here is an excellent thread: Closing Credit Cards .

From a BK years ago to:
EX - 9/09 pulled by lender 802, EQ - 10/10-813, TU - 10/10-774

"Some people spend an entire lifetime wondering if they've made a difference. The Marines don't have that problem".

Anonymous · ‎02-22-2011

Good information to know! Thanks. Still waiting on the underwriter's decision on this loan. The utilization on the Dell CC will go down rather quickly if this all works out. Would adding her as an AU on my cards be added into the calculations for her credit score? Both my low limit ($500 and $1,200) are at 0% util. Is an AU considered the same as "owning" the account as far as credit reporting/scores go?

MarineVietVet · ‎02-22-2011

@Anonymous wrote:
Good information to know! Thanks. Still waiting on the underwriter's decision on this loan. The utilization on the Dell CC will go down rather quickly if this all works out. Would adding her as an AU on my cards be added into the calculations for her credit score? Both my low limit ($500 and $1,200) are at 0% util. Is an AU considered the same as "owning" the account as far as credit reporting/scores go?

Yes it mght help her IF the account is older than any of hers, IF the payment history is long and clean, IF the utilization is very low, and IF it will report to the CRA's. Not all cards will do this. You need to ask the company first. She will inherit the entire history of this account. One caveat however; if this account starts to go south both your credit and hers will be affected. Keep that in mind.

From a BK years ago to:
EX - 9/09 pulled by lender 802, EQ - 2/11-816, TU - 2/11-782

"Some people spend an entire lifetime wondering if they've made a difference. The Marines don't have that problem".