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Pay merchant or bank card

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ecxpa
Valued Contributor

Pay merchant or bank card

While maintaining the herd I ran across a small dilemna...........just got some extra cash and I can  pay off either Lowe's which is at about 40% util or a couple of bank cards each about 5% util.......I'm fairly happy with scores right now EQ 730, TU 767, and EX 762 but would like to see a bump in the EQ score.   My question is does it matter which I pay off Lowes vs USAA/BOA as far as my score is concerned..........which one(s) should I pay off?????????Thankx all.

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Anonymous
Not applicable

Re: Pay merchant or bank card

It depends on how many credit cards you currently have, and of these how many currently have a $0 balance.

 

In what follows, I will use the word "cards" as shorthand for any revolving account

 

When all cards show a positive balance (even if that balance is quite small, like a cup of coffee) you take a significant score hit for that.  When most cards show a positive balance that score penalty is less, but you still take a hit.  What FICO likes best is when you have at least one card showing a positive balance, but most of your cards are reporting $0.

 

For example, let's assume that you have exactly three cards total (two bankcards and a store card).  That means all your cards are showing a positive balance.  By paying off the two bankcards, you'd create a situation where most of your cards are showing $0 with one card showing a positive balance.  That should in theory give you a significant score boost.

 

But suppose instead that you have 12 cards right now with nine showing a $0 balance.  In that case, whether you pay off two cards or one, you will still have the vast majority showing a $0 balance.  So in that case I would lean toward paying off the store card, though it likely doesn't matter much.

 

Note that if any of your cards were charge cards (as opposed to credit cards), they won't count as the minimum of one card reporting a positive balance.  You want to have one true credit card showing a showing a positive balance (and most of the cards as a whole showing $0).

 

Final thought: if any of your cards were individually at 50% or more, I'd lean toward saying that your first priority would be to get all of your tradelines down to under 49%.  But since your store card is well under 49% now, I am doubtful that you are taking any score hit regarding that card's individual utilization.  (Though of course paying it off will be good to the extent that it creates a tradeline with a $0 balance and to the extent that it lower's your overall utilization.) 

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