Credit Card Debt management question.

[Anonymous]

Hi, new here obviously , I just have a quick question..

I'm looking over my credit card debt span across 6 cards, 4 of 6 are hovering around 50% debt-credit ratio and 2 are near 80%. Now my question is this.. which option to attack this debt would be better to increase my FICO score:

# Paying off a card completely one at a time (either lower apr or lowest balance?) while making smaller payments to other cards.

-or-

# Paying statements in a way where it reduces the debt-credit ratio across the board?

Ex: getting all the 50% ratio cards to 40% then 30%, etc. each month and then keep small balances and paying in full each month and focusing most of the resources on higher % ratio cards.

Note: I may have been misinformed or not read correctly, when bureaus take debt/credit ratios, is it individual companies reporting balances or is it your entire combined ratio(thus making my above question moot )?

Thanks in advance for any suggestions.

[llecs]

Welcome to the forums!

FICO looks both at individual utilizations (balance/CL) and combined utilizations. If debt paydown is not an issue, then focus on the 80%s first. Once it hits 50%, then bring down all three. Ideally, you'd want 1/2 of your CCs reporting at least $1 but not more than 9% of your CL and the other half at $0.

If debt paydown is an issue, IMO, then tighten the budget and I'd pay the lowest balances first and snowball the debt from one card to the other, all the while paying minimums on the other CCs. This will result is more $0 balances sooner, a slightly higher bump in your scores, and lower minimum payments (if apping for anything anytime soon).

As a rule of thumb, per your overall utilization so as long as your credit mix is good (I'm sure you are OK w/ 6), then for every 10% you lower to 0%, you gain 10 points. So, if your overall is at 60%, then expect about 60 points+ if you pay off all your CC debt.

[Anonymous]

Thanks for the very informing reply!

I understand you mention having half of my credit cards (3/6) have 0 balance and the other half have some, ideally. 

As of right now I am able to completely pay off probably 2 or 3 cards that have 50% ratio on them in 4-6 months, or in that same time frame I can get the two 80%'s to below 50% ratio. I don't forsee applying for any loans or purchasing anything big within the next year or so I want to say... so I guess getting my FICO score up isn't the biggest priority. Which option would you think is wiser?  Whichever one that has me paying less finance fees?

Just to add.. the 2 80% cards have a 9% apr and the other 0% for another 5 months I think..

[Junejer]

Yes, I would opt for the plan that caused me to pay less in finance charges. Something to think of down the road too. Most members report that their scores perform better with one card reporting a small balance of 1-9% util and all the rest reporting a balance of $0. I know that I fall into that category as well. This is just one of those things that is anecdotal. When the time comes, play with it yourself and see how the scores react in your bucket.

[haulingthescoreup]

Most of the time, I'd say financial sense trumps scoring sense every time.

I do want to point out though, that in this day and age, a lot of banks are softing you (pulling your reports for account review, where you don't get charged with an inquiry.) Many are getting very nervous when they see high utilization on other cards, and it is not uncommon for them to CLD (credit limit decrease) you to a couple of hundred dollars above your current balance. Then, as you pay down the balance, they keep dropping the CL until it hits $500, or they go ahead and close you down entirely.

There's just no way of predicting when or if this will happen, but it's something that you should be aware of, especially if you have a card from one of the twitchier banks like American Express.

Depending on your available cash and current balances, another approach would be to pay all balances down to 49% or less, and then start killing off individual accounts.

Really though, it's kind of a crap shoot these days. Good luck!

[marty56]

I would only add that you would pay down the balance on your best, and oldest card to protect it from AA.

[Anonymous]

Yeah part of the reason for high % is because of Amex.. I have 2 cards that were barely breaking 15% useage then for no reason at allcouple months ago i get hit by credit limit decrease to around $100 above my balance.. i was appalled.. didn't know what to do... Checked the credit report they looked at and everything was in good standing... did some research online and they were doing it for everyone and rumors about them lowering credit limit depending on where you shopped. And (could be coincidence) but I used one of my amex at walmart for a small purchase (box of bandaids), and few weeks later i got hit with limit decrease.. sigh