I searched briefly for an answer but...looking at impact of loan

[Anonymous]

I looked and found some useful stuff in the forums but not exactly what I need.

My cc util is around 53% my fico is 723 so Im not horrible but I know that util is dragging on me. And even MORE importantly the payments are killing me thanks to my two c/c banks increasing the apr for me that I am really noticing.

What I am contemplating is a bank loan at 6.9 or 7.9 to pay these down if not completely off. That payoff is five years and it would take 20 years or something near that to pay the two c/c off at 1.5 times the min. while the bank loan is equal to less than the current minimum on both c/c.

So I know I get to enjoy more sooner with the bank loan but I am looking to be in a mortgage next year and wonder what the impact of this is and can't get the exact info I'm looking for relating to that with a short search.

It seems like such a no brainer to me and that concerns me. It would be a new inquiry, and a new account that is a fixed loan. I have 4 years left on a car note and these 2 c/c so I know I would benefit by doing it. But does FICO?????

Does a bank when about to issue a mortgage see it the way I do or do they say, oh no, he added a fixed term loan less a than a year ago.

I have come a long way to get to this point and quite frankly, don't want to blow it now!!

Thanks for your thoughts and knowledge. 

[GregB]

I'd skip thinking about a house at all until you resolve the CC issue. The CC balances probably didn't seem like a big problem AT THE TIME, but the times have changed. Looking at this with regard to today's credit environment, I would say you are well on the way to "blow it now". Act quickly to save it and it could be a really good thing for your credit in the future.  Perhaps do something like make a big extra payment on one CC soon. Do the same to the other one ASAP. If that doesn't work, pay the amount of the minimum on each CC twice a month so you are paying the minimum well before the due date and paying that amount more toward the principal each month. If neither of those work, come up with a "plan C".

If you have CC with interest rates higher than the 7.9% you are looking for AND you are only paying 1.5x the minimum, you are already in fairly deep doodoo. I think the tiny payments contributed heavily to the CC Companies raising your rate. Having a car loan on top of that is not a big deal except it has 4 years left on it. That would mean you went for the extra long loan and it is fairly new, right?

I think these two issues will make it difficult to get a bank loan at 7.9%. However, if you can do that, it certainly sounds like a big improvement. Can you talk to your banker and get an indication it is possible before you get another inquiry on your CR? Looking for new credit that you don't get is going to make your existing CC Companies even more likely to raise your rate again.

[Anonymous]

Welcome to the forums!

Depending on the amount of CC debt, the CC interest, and the rate at which you can pay it off, it's hard to see how you wouldn't be better off with the bank loan.

In general, the more you pay off faster, the better your score will be.

And mortgage lenders look at more than your FICO.  They look at income, DTI, down payment, employment history, and other factors as well.

[Anonymous]

The bank will look at your score and your total debt to income. Since your monthly payment on the bank loan is less than the minimum on your cards, this is actually an improvement in the banks eyes over your current DTI. The only affect the new account should have on the bank's opinion of you is in how it effects your credit scores.

I don't know the rest of your credit profile, but I would guess that the decrease in your revolving utilization will outweigh the negative impact of the new account. You should make sure that the new bank loan will be reported as an installment loan, and not as a credit line for this to be true though! If it reports as a credit line then you will be starting with a 100% util on that line. In a years time it will probably be just above 80%. If it reports as an installment loan it's more like a car loan for instance. Your score will get better as it pays down, but it won't take as big a hit to begin with because of course you start out with 100% of the balance being used.

All in all, you should almost always choose the smartest financial option over the one that helps your score the most.

[Anonymous]

I think I like this response the most out what I have received. I most certainly do appreciate all the respones though. Even if I don't neccessarily agree with them! Thanks for replying. While on paper you would like to think scores equate to real world scenarios ie: getting a better deal, it doesn''t work like that all the time. 

I think Manks response is exactly what I am looking for. As long as the bank reports it as an installllment loan I should be able to benefit all the way around. Pay down my debt quicker, cheaper and improve my score! That's the triple play that I am hoping for.

And I know that nobody can get exactly what I'm lloking for in advice because you're not looking at my whole credit picture. Or at least I hope you're not or I better get Lifelock on the phone lol.

Awesome and thanks for your thoughts guys.