Personal loans to pay off credit cards

[Anonymous]

Hey all,

I was hoping for some input. I'm just beginning to work on my credit. Currently my experian and equifax are at 590 and transunion is at 650. I currently have a personal loan at 4.5k that I took in September. I have about 4k in credit cards and these are at 95% utilization. I was told my credit would go up anywhere from 20 - 40 pts if I pay my cards off. I'm wondering if I take a personal loan to pay off my cards and refi the current personal loan, will this negatively affect my credit or improve it?

I'm looking at potentially prequalifying for a mortgage in April and don't want to drop my scores any lower, since I'm right at the cusp of an FHA.

Thanks!

[Anonymous]

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@Anonymous wrote:

Hey all,

I was hoping for some input. I'm just beginning to work on my credit. Currently my experian and equifax are at 590 and transunion is at 650. I currently have a personal loan at 4.5k that I took in September. I have about 4k in credit cards and these are at 95% utilization. I was told my credit would go up anywhere from 20 - 40 pts if I pay my cards off. I'm wondering if I take a personal loan to pay off my cards and refi the current personal loan, will this negatively affect my credit or improve it?

I'm looking at potentially prequalifying for a mortgage in April and don't want to drop my scores any lower, since I'm right at the cusp of an FHA.

Thanks!

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Whether its worth doing really depends on the terms of the loan you can get. Personally with only 4K of credit card debt, I would look at getting it down without using other debt.

[Anonymous]

I have considered that, however right now I don't have the extra income to do so. My payments would remain the same with a personal loan in lieu of the credit cards, however I would shave some time off of the current personal loan I have because I would have better terms. So essentially I would be able to pay off my credit cards and refi my current personal loan to a shorter length, for the same amount I am paying monthly, if that makes sense. My main concern is if this will lower my credit score because it would be a new account?

[Anonymous]

Getting a loan will lower your revolving credit which should increase your score, but it sounds like you are shifting debt rather than paying it down. The score is impt but underwriters look at more than just the score to qualify you.

90%+ UTI is maxed out and gets you extra dings on your score.

I'd say see if you can get your cards below 90% without incurring additional debt to do it. That might give you a few extra points.

[RobertEG]

It is a common and good strategy provided you use the entire loan amount to pay down existing revolving debt.  In that case, you are not incurring new debt, and reducing your revolving % util.  You are moving the debt deck chairs to a more favorable location.

From a credit scoring point of view, the downside is that it can add an additional hard inquiry, and if the loan reports, can lower your avg age of acccounts, as it will begin with an age of zero.  It is sometimes hard in advance to estimate those offsetting effects........

Ideal would be to secure a low APR installment loan from a creditor who does not do a hard pull or report to the CRAs, and who offers an APR lower than that of the credit card rates.

From a financial point of view, installments usually have a lower APR, but that is a separate consideration from credit scoring.