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Member
jgATL
Posts: 9
Registered: ‎04-15-2008

Raising score prior to home refi

I have just paid off 5 credit cards in the past few days, moving from approx a 90% credit usage/limit to now zero (should now reflect $40k of available credit).  Unfortunately, Amex continues to report balances even though I pay it off each month. I have maintained a small balance on a amex credit card (skymiles) that I cancelled about 18 months ago so that it won't show closed.  

 

The refi will consolidate my first and second mortgages into one loan, which will be conforming and would not be underwater after refinancing.  The second loan is a line of credit and the refi will lock this into a fixed rate along with the primary mortgage.  

 

My FICO score prior to payoff is 694.  I am hoping for a bump to the 720 range when the credit cards post a zero balance to my reports.  

 

I have three credit score impact questions:

 

1.  Auto loans.  I have two auto loans with about 18-20 months left.  THe balances amount to $14k and $20k (original loan value were $36k and $35k).  I have enough money to pay them both off, but want to make sure paying them off doesn't hurt my credit scores.  I've seen some posts on this forum of paying them down to near zero while still leaving it open.  There is no prepayment penalty on either loan.

2.  Monthly credit usage.  In order to pump my score, should I avoid using any credit for the next 60 days and just go to cash/checks?  Or should I continue to use credit and just pay it off each month?  

3.  Timing.  How long should I wait to get the best score for refinancing?  I believe we'll see low rates into 1Q next year and would like to balance the refi timing against the credit score increase

 

Any other suggestions would be appreciated.  

 

Member
jgATL
Posts: 9
Registered: ‎04-15-2008

Re: Raising score prior to home refi

Anyone have some advice here? Score has now moved to 728.  

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

Re: Raising score prior to home refi


jgATL wrote:

I have just paid off 5 credit cards in the past few days, moving from approx a 90% credit usage/limit to now zero (should now reflect $40k of available credit).  Unfortunately, Amex continues to report balances even though I pay it off each month. I have maintained a small balance on a amex credit card (skymiles) that I cancelled about 18 months ago so that it won't show closed.  

 

The refi will consolidate my first and second mortgages into one loan, which will be conforming and would not be underwater after refinancing.  The second loan is a line of credit and the refi will lock this into a fixed rate along with the primary mortgage.  

 

My FICO score prior to payoff is 694.  I am hoping for a bump to the 720 range when the credit cards post a zero balance to my reports.  

 

I have three credit score impact questions:

 

1.  Auto loans.  I have two auto loans with about 18-20 months left.  THe balances amount to $14k and $20k (original loan value were $36k and $35k).  I have enough money to pay them both off, but want to make sure paying them off doesn't hurt my credit scores.  I've seen some posts on this forum of paying them down to near zero while still leaving it open.  There is no prepayment penalty on either loan. I feel that you should pay off any debt as fast as possible as long as you don't use up your savings. Being debt free IMO is my #1 priority with my score a distant second. Paying off these loans will have little if any impact on your scores. Closed accounts still count towards your credit mix. But that's just what I would do. Others probably have a different view.

 

2.  Monthly credit usage.  In order to pump my score, should I avoid using any credit for the next 60 days and just go to cash/checks?  Or should I continue to use credit and just pay it off each month?  Everyone's situation is different and there is no one size fits all approach to this but what seems to work well for most people is to have only one of their cards report a small (<9% of it's credit limit) balance each month and then pay in full before the due date. You can use it as much as you want during the month but what's important is the reported balance because for most cards whatever is reported on the monthly statement is what is used to calculate utilization for the month.

You might have to play around with the percentages for a few months to see what works best for you. Some people say that 1-3% utilization helps the most. For others it might be 5-9%. As I said it's not one size fits all.

On any other cards always try and have them report a zero balance each month. That doesn't mean you can't use them just make sure that the desired zero balance on these accounts is achieved several days before their statements post.

Along with individual and overall utilization, FICO also scores the number of all types of accounts reporting a balance.at any one time Making sure less than half of all your accounts report a balance helps most people.

3.  Timing.  How long should I wait to get the best score for refinancing?  I believe we'll see low rates into 1Q next year and would like to balance the refi timing against the credit score increase Only you can decide how long to wait. But once you make a decision that the time is right then live with that and don't look back. Don't second guess yourself. All you can do is go forward with the information you have available at the time.

 

Any other suggestions would be appreciated.  

 


 

Member
jgATL
Posts: 9
Registered: ‎04-15-2008

Re: Raising score prior to home refi

Good advice.  The biggest thing you helped was with the installment loans.  If they don't count as "credit" and won't lower my score immediately, then I will continue to pay on them as is.  I'll also look at prepaying right before my amex statement date to see if the overall score drops.  Moving from 698-728 is a great 30 pt jump, but I don't think I'll get all the way to 750 which is the next mortgage rate drop.  I'll wait a month to be sure, but I think the best I can expect is 735-740 on these short term actions.

 

Thanks again for lengthy and highly valuable response! 


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