Help with raising fico

[Sassy_Taurus]

Hello everyone. I will be applying for a mortgage mid December. Currently I'm working on getting my scores up to 640. I have two small credit cards 300 limits both at 90% utilization. One has a statement cut off in a few days. Will paying that one to a zero balance raise my score any?

[Anonymous]

You will get a huge score boost by paying one card off entirely and then keeping your total utilization in the area of 1-5%.

Here's a simple plan that would work for you.  Make sure you know when the statement gets cut for each card.  That is probably when the card company reports your balance to the credit bureaus but you should also call the card issuer to make sure.  Pay one card down to zero and then stop using it entirely until you finally own the home.  With the other card, pay it off entirely as well -- but always make sure there is a small balance (maybe 5-20 bucks?) on it when it reports.  This may mean you have to sign on online and pay it down a couple times a month.

Do you have an installment loan of any kind?  (Auto, Student, Personal, Mortgage?)  If so what kind and is it still open?  If you have never had an installment loan before, there may be a quick and cheap way to get one added to your profile that could help you.  We can tell you more about that if you want.

You say that you are applying for a mortgage in mid-December.  Is that the first step of a pre-approval?  Or do you have your eye on a specific property with a plan to own it by January?

[Sassy_Taurus]

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@Anonymous wrote:

You will get a huge score boost by paying one card off entirely and then keeping your total utilization in the area of 1-5%.

Here's a simple plan that would work for you.  Make sure you know when the statement gets cut for each card.  That is probably when the card company reports your balance to the credit bureaus but you should also call the card issuer to make sure.  Pay one card down to zero and then stop using it entirely until you finally own the home.  With the other card, pay it off entirely as well -- but always make sure there is a small balance (maybe 5-20 bucks?) on it when it reports.  This may mean you have to sign on online and pay it down a couple times a month.

Do you have an installment loan of any kind?  (Auto, Student, Personal, Mortgage?)  If so what kind and is it still open?  If you have never had an installment loan before, there may be a quick and cheap way to get one added to your profile that could help you.  We can tell you more about that if you want.

You say that you are applying for a mortgage in mid-December.  Is that the first step of a pre-approval?  Or do you have your eye on a specific property with a plan to own it by January?

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Thank you for the advice. I have a car loan $450 a month and a student loan $50 monthly. I just came out of defermnet in September. So far I've made the September payment and I've already made the October payment.  When I made the 1st payment on the student loan I saw an increase. The student loan balance is about $3000. I spoke with a loan officer in August who advised me to get two credit cards to help increase my scores. At the time my middle score was 590. I wanted to get preapproved before I look at homes. I've only looked online through redfin and zillow to get a feel of whats out there.

[TheConductor]

Definitely follow CreditGuy's advice to get those balances paid down, and have a plan to keep them down.

In addition, avoid applying for any new credit at this point.

If either of your credit cards can do a CLI with just a soft pull to your credit, that is worth pursuing since it will also help you get your percentage utilization down if you have a higher total credit limit. For example, $250 total balance on $1000 total CL is better utilization than $250 balance on $600. You would typically see a score boost for having 25% utilization instead of 42%, without actually paying a single dollar more.

Also, if you have any negative items on your reports, now is the time to pursue debt validation, goodwill letters, etc. Since you want to avoid opening new accounts within 6mo prior to your mortgage, it is easier to improve your score by removing negatives from your history than it is by adding new positives.

The good news is that if you just started paying that student loan, time is also on your side. You should start seeing some score growth just from continuing to make those timely payments and reducing the principal.

[Sassy_Taurus]

I just opended the cards in August so I do not think that they will give me a CLI so soon. I just made a payment to one of the cards paying if off. I'll wait and see if I see and score change from that. The nect card does not close until the 18th and I will pay all except $10-20.

[TheConductor]

What are the two cards you have?  You're cprrect that most lenders will not give a CLI this early, but some will. And more will grant a CLI after 90 days, so you could ask in November.

[Anonymous]

Great first steps!  Just for clarity, the balance management on your cards is something you should be thinking about in terms of how the balance reads BEFORE the statement cuts.  Thus, for one card you want to pay it down to $0 before the statement generates and the other card down to $20 (say) also before the statement generates.  That way you will swiftly get the amounts down in terms of what is being reported.  That's the key.

BTW, just in case you are curious, this plan for your credit cards will help you in three different ways.  It's easiest to describe in terms of ways you are being penalized now.  (1)  You are being penalized for each card being close to being maxxed out (FICO looks at each line individually).  (2)  You are being penalized for having all of your accounts having a positive balance (FICO likes seeing all of your CCs having a zero balance except one).  (3)  You are being penalized for having your overall CC utilization being high (believe it or not, FICO starts giving many people a penalty when their overall is as low as 10%).

Great to hear that you have a couple open installment loans.  As The Conductor mentioned, you need to make sure moving forward that you are never late on any payments on your loans or credit cards.  NEVER!  :-)  TheC also asked whether your credit history has ever involved any past late payments or anything like that.  I am guessing the answer is no, but can you clarify?

Can you tell us how much the car loan was originally for and how much your owe on it now?  Same thing for your student loan?  (My guess is that, on the student loan, you may now owe more than it was originally for.)

How much cash would you be willing to spend on paying down your two installment loans if that would help your credit score?  The answer may be that all you have available is the $600 to pay off the credit cards -- if so fine, just tell us that.  There is a possibity that you might be able to get some score benefit from paying down the loans, but we'd need to hear where they are and whether you have a lot of money you want to spend on that.  Do not do anything like paying the loans OFF, regardless.

Finally, what tools (e.g. web sites, services, etc.) are you using to monitor your credit reports and your credit scores? 

[Anonymous]

PS.  Can you make a guess about when you might actually buy a home?  Useful to hear would be an earliest and latest date.  E.g. it might be: "as early as March but no late than August."  Or it might be: "as early as April and as late as a year after that."  That will give us a basis for suggesting the best credit improvement strategies given your timeline.

[Sassy_Taurus]

I filed chapter 7 in 2013 discharged January 6, 2014. I bought the car as soon I discharged because my previous car was included. The student loan is about $3000 I went through the rehabilitation program an I'm starting fresh. The conductor asked what cards I have and to answer I have Cap 1 secured and Total Access. Off the top of my head I do not have the auto loan payoff. It was purchased at $16000. I have one baddie (collection). Ortho account for my daughter went to collections. I couldnt make the payments while on maternity leave this year.  I've spoken with the company and they are willing to remove once paid.

[Sassy_Taurus]

I was hoping to apply in January that would be my 2 year seasoning after discharge.