Best strategy to increase score

[Anonymous]

Hi.   I am in a position to pay my last 2 revolving credit cards. 

I can pay off both JC Penny @ 3181.00 and Chase @ 3614.00 in full.

Since this is true gift I have been given, I would like to make the most of it and pay in a manner to best increase my credit score which is right now @ 651. (I have past history of serious delinquency and collections)

Is this to pay both off to zero at once?

Pay both down to less than 1/2 the balance each and then pay off in 4 months?

Or pay down over 3 - 4  months? 

Any advise is appreciated.

[MarineVietVet]

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@Anonymous wrote:

Hi.   I am in a position to pay my last 2 revolving credit cards. 

@I can pay off both JC Penny @ 3181.00 and Chase @ 3614.00 in full.

@Since this is true gift I have been given, I would like to make the most of it and pay in a manner to best increase my credit score which is right now @ 651. (I have past history of serious delinquency and collections)

Is this to pay both off to zero at once?

Pay both down to less than 1/2 the balance each and then pay off in 4 months?

Or pay down over 3 - 4  months? 

Any advise is appreciated.

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This is just my opinion. You'll receive others. Use what you think will help you the most.

If you have an emergency fund in place I would pay off both. There is no reason to ever carry a balance if at all possible.. All that does is cause you to pay interest. After you PIF use both from time to time to keep them active but only have one report a balance each month (1-9% utilization) on the statement and always PIF before the due date to avoid finance charges. On the other card always PIF before the statement posts so that the balance is always zero. The reason I recommend that is FICO likes to see half or less of revolving accounts report a balance each month.

Many times of course life gets in the way and doing all this is just not feasible but try as much as you can.

And getting those derogatories removed will also help your score but reducing your CC utilization is the fastest way to increase your score.

From a BK years ago to:
9/09 EX pulled by lender 802
3/10 EQ- 800
4/10 TU -772

You can do the same thing with hard work

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[marty56]

I would PIF both accounts.  There is no score advantage in paying over time since the only thing that effects your FICO score is the amount reported and payment history.

[vanillabean]

I couldn't have put it better than marinevietvet did. Wait a minute. Who am I kidding? I wish I could give advice half as well as he did

Let me just add the following. Why is an emergency fund generally viewed as money in the bank or under the pillow? If you PBS (Pay Before Statement), you have freed up available credit. That's about a month up to the due date, and still no interest to pay.

[MarineVietVet]

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@Anonymous-own-fico wrote:

I couldn't have put it better than marinevietvet did. Wait a minute. Who am I kidding? I wish I could give advice half as well as he did

Let me just add the following. Why is an emergency fund generally viewed as money in the bank or under the pillow? If you PBS (Pay Before Statement), you have freed up available credit. That's about a month up to the due date, and still no interest to pay.

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You are correct about that. I think though (just my 2 cents) a cash emergency fund is better because if you have to use a CC to pay for large unexpected expenses you run the danger of starting down that path of high interest payments once again.

Being able to pay cash for emergencies gives a sense of freedom that is just not there using credit. I know that in real life sometimes a CC has to be used (been there) but cash is still king in emergency situations.

From a BK years ago to:
9/09 EX pulled by lender 802
3/10 EQ- 800
4/10 TU -772

You can do the same thing with hard work

Credit Scoring 101
Common Abbreviations
Frequently Requested Threads
Whats In Your FICO Score

[vanillabean]

The psychological mechanism of being afraid of the unknown (the future) vs what you know for sure (the past) probably kicks in here.

If you in the past have put a high priority on building up an emergency fund, that meant you took longer to pay off your toxic credit card debt, translating into having paid more in interest, which again means it took even longer to pay it off. On top of it, if and when your emergency fund runs out, you may have to turn to your credit cards.

If you instead had focused solely at paying your credit card debt and now are ready to build up your emergency fund and might run into a rainy day, you'll first move your credit card payments from before the statement cycle date to the due date. Depending on the length of the rainy day, you may after that (but it's not for sure it'll last that long!) resort to less than PIF.

Your choice likely depends on your comfort zone

[vanillabean]

marinevietvet wrote:

"Being able to pay cash for emergencies gives a sense of freedom that is just not there using credit."

I agree that cash is safe (up to the point you run out of both it and your sense of freedom), but it comes at a high price. Stacking up cash will not increase your score, although I see that yours is impressive!

[Anonymous]

Dear marinevietvet and all other replies,

Thank you for your input.

I value everyone's opinion, as I learn from everyone.

So I will PIF  both and then  every other month or 2 charge a small $ on one card and PIF prior to the due date the do the same on the 2nd card...

I could never figure out when the interest hit. Now I know  .

Thanks again for everyone support.

robmod

[Anonymous]

My score was roughly 650 (reported to me by a lender) back in March.  I've done two thing since then.  Paid off the last of my debt.  Paid off a couple of small unpaid delinquencies.  The same lenders who turned me down 3 months ago are approving me now.  The increased score was a factor (a combination of 3 months of aging and paying off the debt) but I think the zeroing of those delinquencies did just as much good.  I didn't get them removed.  I tried, but the creditors wouldn't play.

So, based on that, here's my advice.

- Keep enough cash on hand to be able to pay off your bills pretty much as soon as they come in.  Pay everything in full, all the time.

- Try to imagine some financial emergencies, such as sudden loss of income, sudden home or car repair, and establish a cash cushion to be able to deal with those.  Even lesser emergencies are worth contemplating -- things that might make you resort to credit that you can't pay in full when the bill comes in -- sudden need for travel, or something else that can't be put off.

- Pay off all your debt.  Never buy anything that you can't pay in full.

- Scrape your credit report things that you can do something about, such as unresolved $100 collections.  Maybe some PFDs or goodwills can help.

Good luck!