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How best to pay down credit card balances to improve a FICO mortgage scores

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Anonymous
Not applicable

Re: How best to pay down credit card balances to improve a FICO mortgage scores

FICO algorithms can be sensitive to changes, but typically that is only dependent on the number of factors you have, and how close you are to the maximum number of points in that section. The majority of your cards are still maxed out, more than half of your cards have a balance, your installment loan utility is higher than optimal, and your overall utility is still very high. It's very possible that you are still receiving the maximum number of points from the debt category for your profile and simply reducing one card from a maxed out status would not do enough to get you more points. 

 

Without knowing the exact FICO algorithm to determine where that threshhold is, I'd imagine once you get one of the 3 factors CG gave you under control, you may not see any change at all, even small one.

 

I imagine once you hit that 69% dent or get fewer than half your cards with a balance, you'll start to see some movement. Getting your util on the small installment loan could pick up a few points, too. 

Message 11 of 35
Anonymous
Not applicable

Re: How best to pay down credit card balances to improve a FICO mortgage scores

 


@Anonymous wrote:

That is a bit of a surprise.  If the 15k was going to give you a score boost you would have seen it in the alert.  I am wondering if that suggests that, once you have done enough damage to your score with bad utilization, you can't do more.  If so, perhaps you are right now slowly wending your way back from the 9th circle of utilization hell.  You went from the 9th to the 6th but it's still hell so you won't get any relief until you get to Purgatory (e.g. perhaps total U of 79% with half your cards < 69%). 

 

Just speculating.  Regardless you are moving in the right direction.


I'll let you know how it shakes out in the end.So, you seem to know what the utilization percentages I should shoot for on each card.   I am hearing you say, get as many as I can down to 69% or under.I can achieve that with the $28,000 I have to play with, and also get 4 of the smaller ones down to 0%.   Does that sound like a good plan?What are the utilization percentages that matter? You just mentioned a cutoff of sorts at 69%, and I have heard 9% as another one, are there others that matter?I think you mentioned Thomas Thumb  might have an opinion on how best to allocate the $28,000 to pay off the cards, for maximum FICO effect.Here they are again from earlier in the thread with that in mind.USAA Visa WAS  21405/22000  as of  last thursday, is now 6405/22,000Chase 14457/44700 Closed  account- in payoffChase Amazon 2436/2500 CitiBank-old  5395/5600*CitBank 5654/5750 *Discover 14153/14400 *Synchrony Bank Amazon   0/3500 Synchrony Bank PayPal  5477/5600  USBank Visa 12869/12900  USBank REI MC 24388/25000  Wells Fargo Car Loan  753/$1130

Message 12 of 35
Anonymous
Not applicable

Re: How best to pay down credit card balances to improve a FICO mortgage scores


@Anonymous wrote:

I'll let you know how it shakes out in the end.So, you seem to know what the utilization percentages I should shoot for on each card.   I am hearing you say, get as many as I can down to 69% or under.I can achieve that with the $28,000 I have to play with, and also get 4 of the smaller ones down to 0%.   Does that sound like a good plan?What are the utilization percentages that matter? You just mentioned a cutoff of sorts at 69%, and I have heard 9% as another one, are there others that matter?I think you mentioned Thomas Thumb  might have an opinion on how best to allocate the $28,000 to pay off the cards, for maximum FICO effect.Here they are again from earlier in the thread with that in mind.USAA Visa WAS  21405/22000  as of  last thursday, is now 6405/22,000Chase 14457/44700 Closed  account- in payoffChase Amazon 2436/2500 CitiBank-old  5395/5600*CitBank 5654/5750 *Discover 14153/14400 *Synchrony Bank Amazon   0/3500 Synchrony Bank PayPal  5477/5600  USBank Visa 12869/12900  USBank REI MC 24388/25000  Wells Fargo Car Loan  753/$1130


 

I've had significant score changes at 69, 29, and 9.

 

Message 13 of 35
Anonymous
Not applicable

Re: How best to pay down credit card balances to improve a FICO mortgage scores

Nobody know where the various cutoffs are.  About the only cutoff that is known with certainty is 8.99% for total utilization (below that all seems to be the same).  There could be different cutoffs depending on what "scorecard" your profile falls into.  Remember that people are just engaging in a speculative attempt to "backwards engineer" algorithms that FICO is very close lipped about.

 

There's some guesswork that the cutoffs all occur around multiples of 10%:

        79.9%, 69.9%, 59.9%, etc.

 

But again that's guesswork.

 

What's certain is this:

      penalties for total utilization start very low (at 9.001%), they get worse as you get higher, and they matter a lot

      individual U can hurt you a lot but only when you are much higher than for total U

      the mortgage models do like it when you can show some cards reporting $0

 

So that's why I said get everything under 69% (just a guess on my part) to begin with.  Then if you can very cheaply create some $0 balances do that, but only if you can do it very cheaply.  (E.g. cards that have $500 or $1000 credit limits.)  Then do your best to get a solid number of cards under 49%.

 

That's guesswork.  What's certain is that paying down cards is good.

 

If you can get TT to chime in he will tell you to watch your reports every week to make sure that the issuers don't lower your credit limits once you have begun paying down your debt.

Message 14 of 35
Anonymous
Not applicable

Re: How best to pay down credit card balances to improve a FICO mortgage scores


@Anonymous wrote:

Nobody know where the various cutoffs are.  About the only cutoff that is known with certainty is 8.99% for total utilization (below that all seems to be the same).  There could be different cutoffs depending on what "scorecard" your profile falls into.  Remember that people are just engaging in a speculative attempt to "backwards engineer" algorithms that FICO is very close lipped about.

 

There's some guesswork that the cutoffs all occur around multiples of 10%:

        79.9%, 69.9%, 59.9%, etc.

 

But again that's guesswork.

 

What's certain is this:

      penalties for total utilization start very low (at 9.001%), they get worse as you get higher, and they matter a lot

      individual U can hurt you a lot but only when you are much higher than for total U

      the mortgage models do like it when you can show some cards reporting $0

 

So that's why I said get everything under 69% (just a guess on my part) to begin with.  Then if you can very cheaply create some $0 balances do that, but only if you can do it very cheaply.  (E.g. cards that have $500 or $1000 credit limits.)  Then do your best to get a solid number of cards under 49%.

 

That's guesswork.  What's certain is that paying down cards is good.

 

If you can get TT to chime in he will tell you to watch your reports every week to make sure that the issuers don't lower your credit limits once you have begun paying down your debt.


What can you really do if they do lower your credit limits?  I don't think I have any power to control that, do I?

Message 15 of 35
Anonymous
Not applicable

Re: How best to pay down credit card balances to improve a FICO mortgage scores

You could call them if it happens, explain that you are working hard on lowering your balance, and that they can be certain you will be making at least triple the minimum payment every month, or more if they want you to do -- but you really need them to work with you on this -- and that by lowering your CL as you pay it down they would end up keeping your utilization % very high.

 

This is why you need to be making large payments as swiftly as possible on every card -- but still holding on to enough cash that you can be confident that you will be making > 3x the minimum payment on every card.for the next four months in a row.  You have gotten yourself into a dangerous place with having almost all cards maxxed out, and you are vulnerable to having harsh adverse action taken against you.

 

I am no expert regarding having all my cards maxxed out, since my utilization is always < 4% usually just a bit under 1%.  But I do know that what I just described can and does happen to people in your situation.  If you want to explore it further, you can go to the Rebuilding forum, create a new thread, and ask what you should do if it DOES happen to you (i.e. how best to negotiate with your issuers in that event).

Message 16 of 35
Anonymous
Not applicable

Re: How best to pay down credit card balances to improve a FICO mortgage scores


@Anonymous wrote:

You could call them if it happens, explain that you are working hard on lowering your balance, and that they can be certain you will be making at least triple the minimum payment every month, or more if they want you to do -- but you really need them to work with you on this -- and that by lowering your CL as you pay it down they would end up keeping your utilization % very high.

 

This is why you need to be making large payments as swiftly as possible on every card -- but still holding on to enough cash that you can be confident that you will be making > 3x the minimum payment on every card.for the next four months in a row.  You have gotten yourself into a dangerous place with having almost all cards maxxed out, and you are vulnerable to having harsh adverse action taken against you.

 

I am no expert regarding having all my cards maxxed out, since my utilization is always < 4% usually just a bit under 1%.  But I do know that what I just described can and does happen to people in your situation.  If you want to explore it further, you can go to the Rebuilding forum, create a new thread, and ask what you should do if it DOES happen to you (i.e. how best to negotiate with your issuers in that event).


Thats good advice, thanks.  I have had some luck pleading my case at times, but not back in 2208-2009 when this situation was created.  At that time, I had $200,000 in available credit overall, and every balance was a 4 or 5 year special low rate, 0% to 5.99%.   I had never missed any payments on anything in 20+ years.

None the less, as the economy tanked, and me at about 60% utilization, some card compenies either unilaterally closed my unused accounts, or cut the credit limit to within $50 of the current balance.  And then, my long term plan to refi all that debt into the house was delayed as the value was flat for several years.  Now however, the house value is back up, I have the cash to completly pay off all this debt if need be (If FICO will not cooperate) and after I refi my HELOC I will have substantial reserves from the equity.  I have another fully paid off home, so using all the equity in this one is just part of the plan.   So I will be ok, one way or the other. I really appreciate your help.  It does hurt me financially to lose my positions in all my bond funds, it is a catch 22 situation that you have to pay down credit card debt before you can get a loan that will be used to refinance that same debt. and, it is also a catch 22 situation that card companies can shut down your credit lines and thus hose your utilization, when you have never missed a payment.   The system does not adequately measure risk in every case, and it encourages behavior that is not in the finacial intrest of bank customers.  That is, the back should not want me to lose positions in income producing bond funds, just to pay down cards and get a better FICO number, when in the end, once I have that loan, the very same funds will be available to pay off that same debt.  In the end, I am no more credit worthy than I was at the beginning.

 

It was all worth it though, because from 2005-2010, in spite of the recesion, I managed to travel the world. take 5 years off work to do it, start a new business that allows me, now,to work a 4 day week in the same field I was in before, and all in all be in a better position than I was at the beginning.  It is true, the worst case scenario that I modeled back in 2005 when I started this road, came true.   But if the only price I had to pay to achieve all that freedom was a lowered FICO score, and the need to incur some transaction costs in selling my Bond funds to pay off debt and make the FICO go up, well, so be it.

 

The only thing is, I planned for this day, and have the cash to pay down debt. For someone in my exact shoes, that got there not through a plan but because of sickness or involuntary job loss, or any number of other things they could not control, this FICO scoring system and the way it works is totally broken and unfair. The algorithm does not predict default accurately enough to be used in the way it is being used in our society right now, and I think it will take legislation to fix it.

 

I would say, we need a new system, that uses a predictive algorithm that banks would run on a person to show where they would be AFTER they get a loan. And then the bank can control paying off and closing cards to their hearts content, and the person in question would end up with a score and financial situation they, and the bank wanted in the first place.  Chicken and Egg classic problem, and it would be hilarious if not for the damage and hardship this situation causes.

 

Just my two cents.  Thanks again for the help.  I'll report to this thread what happens in the end with my situation. maybe it will help someone. May have some more questions as I go along.   Looks like I got a few more weeks of work ahead at least. I'm used to it though, its been 3 years since all my low rates expired.  I don't think they will reduce my limits now, as some of these cards were issued to me fairly recently, when I already had these scores.  Like I said, the scores are 25 points down right now mainly because I refinanced the 1st mortgage in December. Prior to that, they were hovering around 711 for years.

Message 17 of 35
Anonymous
Not applicable

Re: How best to pay down credit card balances to improve a FICO mortgage scores

It turns out the $15K paydown to one card plus the passage of one more month in time  did improve the FICO 8 scores a little bit after all.

 

Equifax      +6 674--> 680

 

Transunion +1 683--> 684

 

Experian     +4 678--> 682

 

I have now directed an additional $27,000 towards paying down the other balances, roughly in the way CreditGuyinDixie and others recomended. 

I reduced the balances to be below 69%, and paid off two more all the way so there are now 6 accounts at 0% utilization, 1 at 56%, 4 at 65%, 1 at 89%  They were all at ~97% before.

 

Total revolving credit utilization is now at 65%, down from 97%

 

Most of these card companies will not do mid-cycle report updates (I asked) and so these balances will not completely reflect in the credit reports until about 5/27.

 

So we will see what further positive affect all this might have on the FICO scores by the end of this month.

 

Thanks again for the advice from those in this forum.

Message 18 of 35
SouthJamaica
Mega Contributor

Re: How best to pay down credit card balances to improve a FICO mortgage scores


@Anonymous wrote:

It turns out the $15K paydown to one card plus the passage of one more month in time  did improve the FICO 8 scores a little bit after all.

 

Equifax      +6 674--> 680

 

Transunion +1 683--> 684

 

Experian     +4 678--> 682

 

I have now directed an additional $27,000 towards paying down the other balances, roughly in the way CreditGuyinDixie and others recomended. 

I reduced the balances to be below 69%, and paid off two more all the way so there are now 6 accounts at 0% utilization, 1 at 56%, 4 at 65%, 1 at 89%  They were all at ~97% before.

 

Total revolving credit utilization is now at 65%, down from 97%

 

Most of these card companies will not do mid-cycle report updates (I asked) and so these balances will not completely reflect in the credit reports until about 5/27.

 

So we will see what further positive affect all this might have on the FICO scores by the end of this month.

 

Thanks again for the advice from those in this forum.


Congratulations on getting your scores improved, and kudos for reporting back to us on your progress.

 

 


Total revolving limits 741200 (620700 reporting) FICO 8: EQ 701 TU 704 EX 685

Message 19 of 35
Anonymous
Not applicable

Re: How best to pay down credit card balances to improve a FICO mortgage scores

Thanks, I'll report back what happens at end of month.

 

A couple questions concerning mortgage FICO scores.

 

1.  Has anyone figured out a ratio or a formula to figure out mortgage FICO scores from FICO 8 scores?  I know I can buy them but for that I'll wait till end of month.

 

2.  When the bank  pulled credit back in December just after I completed a refi on my first mortgage,  they came up with a score of 665, from Experian, and a reported scoring range from 325-850.   Only, the scoring range for all the Mortgage scores that I have access to on the MyFico 3B report, are all scored from 300-850.  Is the scoring model USBank is using for a HELOC refi different than the mortgages scores I have access to?  What could they be using with a scoring range from 325-850?

Message 20 of 35
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