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Member
Mikeguy11
Posts: 7
Registered: ‎02-28-2011
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Question on how to proceed

I just pulled my credit reports and FICO scores and I actually wasn't too displeased. Right now I have two big hits against me which are high revolving debt utilization (all on two credit cards) and no installment loans. I paid for my car in cash and I'm paying the cards down as I can, but I had a thought that perhaps I could kill two birds with one stone.

 

Would it make sense for me to get a personal loan to clear the credit cards? That wipes out the revolving debt and at the same time, gets me an installment loan to broaden my types of reporting credit. What kinds of short, mid, and long term impacts would doing that likely have? To give you some idea of where things are, if I just came up with the cash to immediately pay off the credit card debt, the FICO simulator claims I'd be at or close to 760. So does adding a paying-as-agreed installment loan and taking down my revolving debt utilization outweight the hard pull and new account?

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LilMirth
Posts: 3,091
Registered: ‎08-09-2008
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Re: Question on how to proceed

Hi Mikeguy11! Welcome to the FICO Forums! :smileyhappy:


Mikeguy11 wrote:

I just pulled my credit reports and FICO scores and I actually wasn't too displeased. Right now I have two big hits against me which are high revolving debt utilization (all on two credit cards) and no installment loans. I paid for my car in cash and I'm paying the cards down as I can, but I had a thought that perhaps I could kill two birds with one stone.

 

Would it make sense for me to get a personal loan to clear the credit cards? That wipes out the revolving debt and at the same time, gets me an installment loan to broaden my types of reporting credit. What kinds of short, mid, and long term impacts would doing that likely have? To give you some idea of where things are, if I just came up with the cash to immediately pay off the credit card debt, the FICO simulator claims I'd be at or close to 760. So does adding a paying-as-agreed installment loan and taking down my revolving debt utilization outweight the hard pull and new account?


It's hard to say. As a broad guess, I'd say that if there's nothing else on your reports, other than two maxed out credit cards, that adding an installment tradeline, and getting rid of your revolving debt would most definitely outweigh the temporary dings of a new INQ, a new account, and a lowered AAoA.

 

But, things are rarely that simple, and you probably have more on your credit reports than just those two maxed out cards that would make the considerations more complicated. Then, there's the more important consideration-- the financial impact. If you open an installment/consolidation loan to pay off your credit card debt, are you a) going to end up paying more $$$ out of pocket, and b) are you going to be tempted to max out the credit cards again, without the ability to PIF?

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Moderator Emeritus
MarineVietVet
Posts: 14,084
Registered: ‎07-14-2009
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Re: Question on how to proceed

Hi Mike,

 

May I ask where you got your reports and scores? That might seem like a silly question but there are many, many sites that will sell you a "credit score" but it's not a score based on FICO scoring criteria and since most lenders use FICO to make credit decisions these "FAKO" scores as we call them are virtually worthless. Actually I consider them 100% worthless because they can't be compared to FICO scores in any way.

 

Plus the advice given with these FAKO's is often counter productive to what actually needs to be done to help your credit.

 

Also what is the utilization on those 2 cards? FICO looks at both overall and individual account utilization.

 

 

 

From a BK years ago to:
EX - 9/09 pulled by lender 802, EQ - 2/11-816, TU - 2/11-782

"Some people spend an entire lifetime wondering if they've made a difference. The Marines don't have that problem".

Member
Mikeguy11
Posts: 7
Registered: ‎02-28-2011
0

Re: Question on how to proceed

Thank you both for responding.

 

Marinevietvet, I'll answer your's first because it's a shorter and simpler answer. The scores came from right here at myFICO.com, along with the advice regarding the utilization, etc.  The revolving credit utilizations as of the date of the score were $5991/6000 (100%), $970/1050 (92%), and $378/500 (77%) for a total of 97%. Since then I've paid things down a bit such that they're now at about 68%, 86%, and 0% respectively for a total of 66%. The payments simply hadn't hit when I pulled my scores. Running them up in the first place was the result of forced circumstances rather than poor judgement. I'm generally pretty good about balancing finances and being responsible. Even though my salary recently jumped thanks to a new job, I haven't started spending like an idiot (and don't plan on it) beyond planning out a few typical large purchases as outlined below.

 

LilMirth, my TU shows an incorrect collection from 5 years ago which I'm trying to work with the collections agency to verify. So far they can't even find a record of me existing on their end, so I'll probably just need to dispute it so it's removed. Other than that, I have an AAoA of 6 years on 5 accounts with TU. Two are closed student loan accounts and three are open revolving. On EQ, AAoA is 5 years on 4 accounts (shows a totally different student loan). No missed or late payments on anything other than the incorrect collection on TU. The only other thing is that my third revolving account was opened within the past year. I have no mortgage or car loans.

 

So my dilema comes from the fact that I'd like to purchase a certain kind of used car within the next 12 months and I want to get a good rate on it. Add to that my intention to begin house shopping within the next 2 to 3 years and you can see why I suddenly decided to pay up for FICO scores and credit reports.

 

I could simply pay off the cards; probably within the next 6 months without breaking a sweat. My thinking is that if I can add another credit account in good standing and get a boost (even a small boost) in my FICO score by diversifying my credit account types as I come up toward getting the car loan, it'll help with my car loan rate, stabilize my AAoA moving forward, and get me geared up for the vastly more important mortgage.

 

My scores as of when they were pulled (without the recent payments applied) were 668 (TU) and 682 (EQ). Per the score simulator, if I just wiped out all my revolving debt today, I'd be looking at 740ish and 800ish. I think they'd be closer if/when the mistaken collection is removed from my TU. Sorry for being so long-winded, but it sounded like more info would be helpful. :smileywink:

Moderator Emeritus
MarineVietVet
Posts: 14,084
Registered: ‎07-14-2009
0

Re: Question on how to proceed

I'm glad to know your scores are accurate.

 

 

 

From a BK years ago to:
EX - 9/09 pulled by lender 802, EQ - 2/11-816, TU - 2/11-782

"Some people spend an entire lifetime wondering if they've made a difference. The Marines don't have that problem".

Moderator Emeritus
beamMEup
Posts: 4,473
Registered: ‎12-31-2008
0

Re: Question on how to proceed

[ Edited ]

If it were me, and it's not....

 

I would pay off the CC debt and get your FICO scores up.

Then I would app for the car loan when I was ready with my nice shiny FICO scores.

Then I'd pull my FICO's again - see exactly where they are -   Then I would get my mortgage and live happily and FICOsmart ever afer.

IMO and IME, your scores are not likely to significantly change when you add your car loan.  But that's just me.

Just puttin' syrup on something, don't make it pancakes.
Moderator Emeritus
MarineVietVet
Posts: 14,084
Registered: ‎07-14-2009
0

Re: Question on how to proceed


beamMEup wrote:

If it were me, and it's not....

 

I would pay off the CC debt and get your FICO scores up.

Then I would app for the car loan when I was ready with my nice shiny FICO scores.

Then I'd pull my FICO's again - see exactly where they are -   Then I would get my mortgage and live happily and FICOsmart ever afer.

IMO and IME, your scores are not likely to significantly change when you add your car loan.  But that's just me.


I have to (reluctantly  :smileysurprised: )  agree with beamer on this. You'll  get a faster and a bigger boost by paying down that CC utilization. Credit mix is scored but it's only 10% of your total score while utilization is 30%.

 

There is no big jump for adding that car loan.

 

 

 

From a BK years ago to:
EX - 9/09 pulled by lender 802, EQ - 2/11-816, TU - 2/11-782

"Some people spend an entire lifetime wondering if they've made a difference. The Marines don't have that problem".

Moderator Emeritus
beamMEup
Posts: 4,473
Registered: ‎12-31-2008
0

Re: Question on how to proceed

[ Edited ]

Marinevietvet wrote:

I have to (reluctantly  :smileysurprised: )  agree with beamer on this. You'll  get a faster and a bigger boost by paying down that CC utilization. Credit mix is scored but it's only 10% of your total score while utilization is 30%.

 

There is no big jump for adding that car loan.


Awww.  Reluctantly?    I'm crushed.  :smileysad:

Actually, I'm stuffed.  Just took two sons to Goodwood for dinner.  Man alive - we can barely move.  But we couldn't stop ourselves.............it's a happy misery.

Just puttin' syrup on something, don't make it pancakes.
Member
Mikeguy11
Posts: 7
Registered: ‎02-28-2011
0

Re: Question on how to proceed

 


beamMEup wrote:

If it were me, and it's not....

 

I would pay off the CC debt and get your FICO scores up.

Then I would app for the car loan when I was ready with my nice shiny FICO scores.

Then I'd pull my FICO's again - see exactly where they are -   Then I would get my mortgage and live happily and FICOsmart ever afer.

IMO and IME, your scores are not likely to significantly change when you add your car loan.  But that's just me.


 

Oh, ok. I thought the car loan would be a significant short term hit to the scores. So basically just forget about getting a personal loan to blow out the revolving debt and just pay everything down normally. That's certainly doable, I just thought there might be a benefit to adding the installment loan immediately.

 

Thanks folks!

Moderator Emeritus
MarineVietVet
Posts: 14,084
Registered: ‎07-14-2009
0

Re: Question on how to proceed


Mikeguy11 wrote:

 

Oh, ok. I thought the car loan would be a significant short term hit to the scores. So basically just forget about getting a personal loan to blow out the revolving debt and just pay everything down normally. That's certainly doable, I just thought there might be a benefit to adding the installment loan immediately.

 

Thanks folks!


That's what I would do. There is no reason to add debt (a personal loan) when it's not needed or necessary.

 

Our goal should be to stay out/get out of debt.  :smileyhappy:

 

It sounds like you will be in pretty good shape after the CC's are paid down. Let us know what happens to your score when you reach that point.

 

 

 

From a BK years ago to:
EX - 9/09 pulled by lender 802, EQ - 2/11-816, TU - 2/11-782

"Some people spend an entire lifetime wondering if they've made a difference. The Marines don't have that problem".


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