Debt ratio and Aging

[sh9730]

Hello,

I current have FICO scores of 674 682 and 701 respectively after patiently waiting for earlier problems to be cleared up and dropped.  I do have one last major negative, an auto repo and a collection related to that repo still showing on my report, but they should drop in May/June (date of last activity posted in June 2001 so is it May or June).  Anyway, I also current have a 43% debt to income ration of 3000 total revolving debt out of 8650 total available. 

My question is this..when I use the FICO simulator, paying these down quickly does not seem to increase the score much, but when I use the "best solution to improve score" helper, it says that the best thing to raise more score the most is to pay down the debt over 24 months.  SO, I am about to apply for a mortgage, and I am trying to decide whether at this point it is better to make just slightly over the min payments and keep more of the cash I would put towards that to my down payment/closing costs? (The mortgage debt to income ratio is not an issue) - OR - pay more of this debt down quickly in the hopes of getting a lower rate on the mortgage? 

Is the aging also that crucial of a factor in making significant increases in the score at this level?  If so, I ll keep the cash for now as of course more down payment can also affect my loan rate.

Thank you for any assistance.

[Anonymous]

Hi sh6730. and welcome to the forum! There's a wealth of information here to help answer your questions.

If your utilization ratio is at 43% the quickest way to improve your scores would be to pay the cc's down as much as you can comfortably afford to do so.

Lowering your scores will most likely result in lower interest payments over the life of the mortgage.

You obtain maximum benefit with util ratio of 1%-9%. That will earn you the most points on your credit report.

You should consider the cost/benefit factor of either lowering your mortgage payment by a larger down payment.....OR lowering your utils to get a better interest rate on your mortgage.

Which will save you more money in the long run? IMO, it would be lower interest rates on your mortgage. But that is up to you.

Good luck to you. Hope that helps a little.

[sh9730]

Thank you for the prompt response.  Most of that I understood already though...I was looking for a slightly more specific answer (if its possible to get one?). 

First, yes I must make the decision as to whether more down payment  vs lower rate is better, HOWEVER, having a higher down payment ALSO affects the mortgage interest rate (more money down can lead to lower interest rate).  But here is the deal in more specifics....

Many lenders use the 680 barrier as the level to move you into the good rates for mortgages. But, the next level is 720 and buys me a quarter point or so....so if I cannot quickly raise my score from 680 to 720, I am likely to have better success putting more down payment.  I will be getting this loan in the nex 60-90 days. 

As I said in the first post, when I use the score simulator and offer the option of paying about 1/2 of my debt over 90 days, the score barely budged even though my utils would be at about 20% then vs the 43% now....BUT, when I use the automatic feature of paying off the debt my score shot up to about 745-750!  The ONLY  difference I saw in the processes was the aging of the accounts (ie the auto feature paid the total debt over 24 months vs my 3-6 months).  So, am I right in concluding that aging of accounts paid down or not, has a significant affect on the scoring?    If so, it seems in my shortened time frame I will be better off using my extra cash over the next 90 days towards lowering the mortgage down payment right? Since even lowering the ratio by half over 90 days only gains me a few points, which as  I ve said my lender says wont change my rate until I hit that 720+ mark?

Thanks again....I know Im asking a pretty wierd question and I appreciate any input.

OH, also, happen to have an answer on that drop off date for that last bad thing on my CR?  Again, the date of last activity on both the repo and the collection related to it shows June 2001?  Will that drop off in May (thereby not being there on a June report), or June (and not showing up on July report)?

[MidnightVoice]

The simulator frequently suggests paying over 24 months, because, assuming no baddies develop, that bring util down to close to zero and adds trwo years age to everything.

So yes, age is important in the long run.  In the short run - pay them down ASAP

And  it seems possible that the old 720 for max benefits is now 730 or so (for the middle of your three scores, so you need to know all 3)

[sh9730]

Thanks again...SO, just so I have it right...the max I can pay off before I get the mortgage loan (within 90 days) is about 1/2 of this debt, otherwise I wont have ENOUGH down payment/closing cost cash.  That said you think I should see a significant score increase with just reducing it by half in that time frame?  Any idea how many points potentially?

I know Im being a pest...but its a tough decision!

[MidnightVoice]

Personal opinion - if you can get it to 19.9% util it will give you the best shot.  It SEEMS that the cut off points are something like 30%, 20%.  Again, personal opinion, if you can't do 19.9, try for 24.9.

[RobertEG]

The critical factor is NOT your current FICO score.  The critical factor is WHEN you need your FICO score in order to apply for new credit, for it is only then that FICO has any real meaning. My strategic FICO plan is simple.  I sit down with my yellow legal pad, and write down at the top of the page the date that I want to apply for new credit.  That is my plan date.  I then back-date that date up by three months, then launch into the short-term tactical tricks that are abundant on this site (when to report, when to PIF, whether to BT, whether to apply for CLI,  etc).  In the interim, I assure no lates, and pay down my %util, dont make unneccasy apps for new credit, and ignore monthly FICO scores.  Simple.