Applied for mortgage and fico score from here dropped 13 points after paying off car loan

[swespace]

We just got an alert from here after paying off a car loan and it hitting credit report that it dropped 13 points. Our score here was showing 699 and when the bank pulled it after applying for mortgage and was way lower at 690 and now we just got an alert that it dropped 13 points. Will that be the same with the bank?

We have 5 credit cards that are almost maxed that we planned on paying some anyway with 10,000. Would we get the best score by paying two of those off or paying 3 balances just under 50%?

I'm not sure whatelse to do.

Please advise! Thanks so much.

[user5387]

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@swespace wrote:

We just got an alert from here after paying off a car loan and it hitting credit report that it dropped 13 points. Our score here was showing 699 and when the bank pulled it after applying for mortgage and was way lower at 690 and now we just got an alert that it dropped 13 points. Will that be the same with the bank?

We have 5 credit cards that are almost maxed that we planned on paying some anyway with 10,000. Would we get the best score by paying two of those off or paying 3 balances just under 50%?

I'm not sure whatelse to do.

Please advise! Thanks so much.

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It's a common thing for a score to drop when an installment loan is paid off.

Utilization is a big deal, and FICO scoring takes into account (1) overall utilization, (2) utilization per card, (3) maxed out cards, and (4) proportion of cards with balances.

If you can post your card limits and current balances, it might be helpful.

The first thing I'd try to do is get balances below maxed out territory, for example less than 70% per card.

[swespace]

Thanks so much for the response!

So will the banks fico score have dropped that many points as well?

Here are my credit card balances and limits. 

Capital One - 9,611.29 on 10,000 credit limit 

BOA - 16,604 on 17,000 credit limit

Amex - 3,075.65 on 3300 credit limit

Discover - 6,975.77 on 7200 credit limit

US Bank - 11,884.59 on 13,000 credit limit

Please let me know how to get the most points and approx how many would get! 

[user5387]

Your overall utilization appears to be around 95%, with limits of $50K.

If you have $10K to pay down balances, that means you could drop your overall utilization to around 75%.

75% is better than 95%, but it's a far from ideal position to be in when applying for a mortgage, in terms of qualification and rates.

Typically the biggest gains from reducing utilization occur when the end point is a low value like 5-10%.  I'm not sure how much you would gain in this situation, though removing cards from the maxed out category should help you a bit.

There's also the DTI angle here to consider.

If you have the money to pay off the cards completely, I'd do so.  If you don't, then you might run into trouble with the mortgage process.

[swespace]

Thanks, but we never had to fully pay off our cards the last time we got our mortgage and we have already been pre-approved with all our credit cards at a local bank. i was just wondering how to improve credit score after currently getting hit from paying our car loan. If it was best to pay them all down under 80% or is it better to pay off two credit cards to 0 and leave the other 3 maxed or getting 3 cards to 30% and 2 maxed, or paying 4 to 79% and 1 to 0.. which gives us the most points?

Thanks again!

[Revelate]

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@swespace wrote:

Thanks, but we never had to fully pay off our cards the last time we got our mortgage and we have already been pre-approved with all our credit cards at a local bank. i was just wondering how to improve credit score after currently getting hit from paying our car loan. If it was best to pay them all down under 80% or is it better to pay off two credit cards to 0 and leave the other 3 maxed or getting 3 cards to 30% and 2 maxed, or paying 4 to 79% and 1 to 0.. which gives us the most points?

Thanks again!

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Honestly with a 680ish score with those balances, you'd qualify for the top tier of mortgage lending if they were paid: that's absolutely killing your score.

The amount you'd save would be non-trivial on a mortgage loan compared to where you are today, as 680 isn't good enough for most lenders.  Also if you haven't submitted much paperwork yet, that pre-approval isn't worth much but I don't know your lender.  If you have submitted paperwork and it's already passed initial underwriting nevermind.

Anyway out of your options you listed, I'd vote 4 to 79% and 1 to zero, but that's still nowhere close to optimal or even good.  If you could get 2 to 79% and 3 to zero, that'd be in all ways much better, and ideally if you have the money, zero out 4 and pay down the final one to under 9% (but non-zero, want at least one card reporting a balance... and less than half of your cards, 2 in your case, is good at least).

Did the loan officer suggest that your DTI ratio with the car wasn't good enough to qualify?  FICO wise should've paid your credit cards and not the installment loan... likely the credit cards are at a higher APR anyway as well so it would've made fiscal sense too.  Frankly you have to have near perfect credit otherwise to sniff 700 with effectively 100% revolving utilization.