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unsecured loan to pay off higher rate CC's

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Anonymous
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unsecured loan to pay off higher rate CC's

Hi all,

 

I have taken out a 48 month loan at 10 percent to pay off all my credit cards which have rates from 12-23 percent.   They payment on the loan is about half what I pay per month so I will plan on paying that extra money toward the loan amount....

 

I just wanted to get some feedback.. the plan is to pay off all the  cc's with the loan.. I am hoping that will increase my scores... I have 5 cards...should I close a few accounts? I definitely want to close one that has an annual fee.  Should I use 2 to keep some credit going and show good payments / keep a low 5 percent balance  for CU purposes, or is a zero balance better?

 

Since this is a personal loan and I won't have any cc debt...that will look better overall correct...

 

I think that covers my questions Smiley Happy

 

Thank you!

Catherine Smiley Happy

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1 REPLY 1
llecs
Moderator Emeritus

Re: unsecured loan to pay off higher rate CC's

Unless there's an upcoming annual fee or monthly charges that make keeping the card economically unviable, then I'd keep them open. Just use them every 3 months or so to keep them active and pay in full. Now that you'll have zero balances, just be careful about repeating the same habits that might bring them back up. Then you'll have higher payments and a loan payment to boot. That happened to me over the past year and have quite a few regrets.

 

Utilization per scoring is a snapshot in time. You can max them all out tomorrow and keep it that way for a year (assuming they aren't closed) and then PIF. Your FICO score after you PIF will be no better than if you kept it at zero the entire year. Though, for best practice (to prevent CC AA) and to develop a habit, and for max points, get all but one CC to report $0 and get the remaining CC to report a balance of under 9% of the CL.

 

Revolving utilization is a big part of FICO scoring. If you had a high util, then paying them off will net you a very significant gain. Here's my experience from the summer:

 

http://ficoforums.myfico.com/t5/Understanding-FICO-Scoring/Score-impact-of-going-from-89-util-to-lt-...

 

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