Which helps my FICO more?

[kmacqua]

Hi folks, Hoping to tap into the collective wisdom here.

I've been paying down my (too high) credit card debt by paying a large-ish sum on the highest APR card and just above the minimum on all other cards and then, when one card is paid off, moving to the next highest APR card, and so on.  This strategy makes financial sense, but maybe not the best credit score sense. And that's been fine since I haven't needed any new credit in quite a while.  Now I want to make some decisions in terms of how it affects my FICOs, not just my budget. (The biggest thing affecting my FICO is high balances.)

I currently have:

$6,500 balance on a closed account (CL was $11,200), low APR

$10,000 balance on an open account (CL= $16,000), higher APR

$0 balances elsewhere, total CC CL (including the CL from the closed account) = $37,600, so I'm guestimating my util rate at about 40%. This is only revolving debt, doesn't include car loan, etc.

All accounts are in good standing.

I've been paying down the CC with the $10,000 balance.

If I've got a large, one time payment that I could make, should I put it toward the open account; the closed account; split it between the two? Does it matter what the amount is? Say if I could make a $10,000 payment, or a $5,000, or $3,000 payment.  What would likely have the more positive effect on my FICO?

[jamie123]

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@kmacqua wrote:

Hi folks, Hoping to tap into the collective wisdom here.

I've been paying down my (too high) credit card debt by paying a large-ish sum on the highest APR card and just above the minimum on all other cards and then, when one card is paid off, moving to the next highest APR card, and so on.  This strategy makes financial sense, but maybe not the best credit score sense. And that's been fine since I haven't needed any new credit in quite a while.  Now I want to make some decisions in terms of how it affects my FICOs, not just my budget. (The biggest thing affecting my FICO is high balances.)

I currently have:

$6,500 balance on a closed account (CL was $11,200), low APR

$10,000 balance on an open account (CL= $16,000), higher APR

$0 balances elsewhere, total CC CL (including the CL from the closed account) = $37,600, so I'm guestimating my util rate at about 40%. This is only revolving debt, doesn't include car loan, etc.

All accounts are in good standing.

I've been paying down the CC with the $10,000 balance.

If I've got a large, one time payment that I could make, should I put it toward the open account; the closed account; split it between the two? Does it matter what the amount is? Say if I could make a $10,000 payment, or a $5,000, or $3,000 payment.  What would likely have the more positive effect on my FICO?

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Your statement about your UTI rate that I highlighted in red above, is incorrect. The UTI calculation is done using AVAILABLE credit. Since that one account was closed and that CL is not AVAILABLE anymore, you cannot use that $11,200 in your UTI calculations.

Your UTI calculation is more like this: $16,500 balance divided by $26,400 CL = 62.5% UTI

It does not look good when you are carrying a balance on a closed account, especially when that account was closed by a lender. Was that account closed by the lender?

Your scores are being hammered by having a 62.5% UTI. For your scores it doesn't really matter which card you pay down first. It makes financial sense to pay down the highest APR card first. If you plan on applying for NEW credit, it would be best to have your closed account at a $0 balance otherwise it will raise concerns with a new lender.

You should sign up for a free credit monitoring account at CreditKarma.com. The report card that they generate will tell you your exact UTI as a lender would see it. You also can pull a free TU 08 Credit report once a week to see almost everything on your TU report. I'd like you to stop back here after you do that and let me know what you find out about your UTI.

Credit Karma is an awesome source for information but gives bad advice. MyFICO is the place to come for great advice.

To answer your question...

If it was me, I would pay off the closed account first and be done with it.

[vanillabean]

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@jamie123 wrote:

Your statement about your UTI rate that I highlighted in red above, is incorrect. The UTI calculation is done using AVAILABLE credit. Since that one account was closed and that CL is not AVAILABLE anymore, you cannot use that $11,200 in your UTI calculations.

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"It depends. Are these non-charge cards or non-WorldPoints or non-signature cards? If so, and if they clearly show a CL within your CR, then they still factor into utilization assuming they are still updating. Once the balance shows $0, then they are forever removed from utilization calculations."

OP, was your card closed by you or the credit card company?

[kmacqua]

It was a Chase Visa card, closed by grantor and reports as such.

[CreditDunce]

Don't worry about your credit score. Your credit score is only valuable if if is saving you money. 

Pay 2x maybe 3x the min for the low APR TL.  Then the rest pay to the high APR card. .  Once you are paying if full,  then worry about your credit score. 

[kmacqua]

That's been my thinking so far, but I'm going to need to apply for new credit in the near future, so my score will save me or cost me money. Ideally, I'd have both paid down completely, but chances are, I'll only be able to improve one/the other/both before I apply for a loan.