Improving Credit by Consolidating to a Personal Loan | Improving Score

[Anonymous]

Hi,

After a few bad decisions, we are dealing with credit scores of 535 and 605...biggest issue...utilization is at 100%. We are deeply committed to fixing this and paying as much as we can down, but we're dealing with some terrible interest rates. We're considering applying for a debt consolidation loan through our bank to simplify and expedite the process but have two questions:

• Anyone had experience improving their scores this way?
• This would be a different type of credit, correct?
• According to the bank, we would have to close most of the cards...we could ask to leave one open and pay it down...but closing them makes it more likely to get the loan. We know the consequences of closing, but we really want to improve our position in two years so we can move on with our lives and sell/buy a new home. How much will this help/hurt our scores?
• Another option is a debt management plan...anyone with experiences here? I hate having to turn over our situation to someone else though...makes me anxious.

Any advice/shared experiences would be greatly appreciated.

Thanks!

[Anonymous]

Welcome to the forum.

A few things.  One, where are you getting those credit scores from?

Second, yes it would be a different type of credit.  You'd be moving your revolving debt to installment loan debt.  You definitely don't want to close out all of your revolving accounts though.  You want at LEAST 1 of them open, preferably 3 in order to maximize your FICO scores.  Have any of your creditors taken adverse action against you by closing any of your accounts reducing your credit limits, etc?  Do you have any negative items such as late payments on your credit report?  If not, I don't see a need to close the accounts.

Finally, I'd worry far less about your credit scores at this point than simply paying down that debt.  You said you're not looking to apply for a mortgage for about 2 years, so don't sweat your "scores" right now.  Your #1 goal should be to eliminate that debt.  Whether it is revolving or installment loan debt, it's still debt that needs to be squashed.  Do that and better scores will follow.  What is your total CC debt currently and how many total CC accounts do you have?

[Anonymous]

Thanks! Scores are from Credit Karma and Credit.com.

There is $29k of credit card debt. I have one old missed payment from 2014, husband has two others but no adverse action. 

Appreciate your encouragement on the scores. We are ready and able to tackle the debt and right the ship! 

[SouthJamaica]

---

@Anonymous wrote:

Hi,

After a few bad decisions, we are dealing with credit scores of 535 and 605...biggest issue...utilization is at 100%. We are deeply committed to fixing this and paying as much as we can down, but we're dealing with some terrible interest rates. We're considering applying for a debt consolidation loan through our bank to simplify and expedite the process but have two questions:

• Anyone had experience improving their scores this way?
• This would be a different type of credit, correct?
• According to the bank, we would have to close most of the cards...we could ask to leave one open and pay it down...but closing them makes it more likely to get the loan. We know the consequences of closing, but we really want to improve our position in two years so we can move on with our lives and sell/buy a new home. How much will this help/hurt our scores?
• Another option is a debt management plan...anyone with experiences here? I hate having to turn over our situation to someone else though...makes me anxious.

Any advice/shared experiences would be greatly appreciated.

Thanks!

---

My advice is to quit borrowing, and start paying the cards down using the snowball method.

[rmduhon]

Get your actual Fico 08 scores from creditchecktotal.com using the 7 day trial for $1. Credit Karma uses Vantage 3 scores which very few lenders use and I'm not sure what Credit.com provides but I can almost guarantee that it isn't Fico scores.

[Anonymous]

If you do decide to consolidate with a personal loan - and I agree that you need to try to pay off what you can first to the best of your ability rather than borrow more if you can - be careful about who you borrow from. I would advise that you avoid consumer-loan places such as OneMain (formerly Citifinancial) not merely because of their high interest rates, but also because taking out loans from such places can hurt your scores even more. If you must take out a consolidation loan, I recommend that you go with a credit union (if you're currently a member of one) or a major bank.

Actually, I think you need to find a reputable nonprofit credit-counseling organization and discuss your situation with them.

[Anonymous]

---

@Anonymous wrote:

Thanks! Scores are from Credit Karma and Credit.com.

 

---

Unfortunately those are not FICO scores, so you're going to want to get at least one FICO score, which you can get for free at creditscorecard.com - this is your EX FICO 08 score which is a far better indicator of where you stand (your starting point) than what you're seeing from CK.

I'd also suggest hitting the rebuilding forum and tackling that late payment.  You said you only have 1, which means removing it may not be all that difficult considering they'll be able to see your otherwise flawless payment history.  Removing your only baddie can result in a score increase of 50-75 points on average, depending on the severity of that late payment and that will happen instantly where the gains you get from paying down debt will come slowly over the course of it being paid down.