Will paying off or 4% maximize score?

Anonymous · ‎08-02-2016

Hi,

My husband has 3 credit cards

Capital One $3000 Limit

Zales Credit Card $2650 Limit

Bank line of credit $500 Limit (calculated in credit card utilization on myFico 3B report)

Would it be detrimental to pay all of these two zero? I'm thinking it would be good because it would save my husband about $100/month on DTI. I'm just worried about a score drop with them all having zero balances. Should I only keep one open? I was thinking keeping the Capital One card at 4% and paying the other two off. Thoughts?

Anonymous · ‎08-02-2016

Keep them all open. Closing them has no scoring benefit, and will impact your available credit greatly since you only have a few accounts open in the first place.

Maximum FICO points for utilization happen when you have everything at zero except one card, and that one is reporting less than 10%. So in your case, keeping 4% on one card and paying off the others is ideal. Having zero balances across the board actually hurts scoring. You have to show a little bit of usage.

This "ideal" model is where you need to be before applying for new credit (cards, loans, etc) since it maximizes your score. You do not need to be there at all times, though, since many credit lines won't grow unless the lender sees usage, and long-term zero balances can draw attention to you. FICO's preferred utilization (for good scoring) is under 30% on all accounts, which is probably more manageable on a long-term basis than the "ideal" state, especially while you are trying to build or rebuild credit.

darwin_wins · ‎08-02-2016

How does your credit report look? If it is clean, from what I have read on other boards the best way to maximize your score is letting one card report $2.

If the CR is not clean, then try to keep 1% balance on one card and pay off other 2 to zero. If for whatever reason you other card shows a balance next month there will be a slight score change but score changes like those are temporary so I wouldnt worry about it too much

Anonymous · ‎08-02-2016

Cool! Great info!

I'll pay the others to 0, keep them open and then have the Capital One report at 4%. Thank you so much!

Anonymous · ‎08-02-2016

paying everything wont help, last year I paid my car off, points went down, I paid my two students loans, my points went deeper down

Scupra · ‎08-02-2016

Unless you are planning to apply for something soon, you are fine to just pay them all off. FICO has no memory and the points you lose for showing 0% util will come right back when you show some util again.

The all cards at $0 and one at under 10% util game can get tiring. Don't stress over this for no reason

Anonymous · ‎08-02-2016

@Anonymous wrote:
paying everything wont help, last year I paid my car off, points went down, I paid my two students loans, my points went deeper down

Hi SeaNDior. Welcome to the forum.

Our OP was asking about credit cards. The key thing to understanding what happened with your installment loans is that the act of paying them off caused them to close. (You can't keep an installment loan open but also pay it down to $0.) With credit cards, you can keep them open AND at the same time pay them off. That's what the OP's husband is being advised to do -- keep all the cards open, pay most of them down to $0 but leave one with a small balance reporting each month.

If you are curious to understand more about how installment loans affect your score, we can direct you to a place that gives a clear explanation, along with an easy trick to always having an open installment loan on your profile that is mostly paid off, which FICO will like a whole lot.

Anonymous · ‎08-02-2016

Thanks to you guys for correcting me, I dint know the differences, between loans and credit cards and to me was the same. I am being here reading the post from many people and their issues like mine, until now I decided to add my FICO scores and be a member to do better with my scores and to learn from you or anyone who is willing to inform to do the right thing. Yes please CreditGuy redirect me if you don't mind.

Anonymous · ‎08-02-2016

So basically there are two kinds of credit accounts: installment and revolving.

Installment accounts are the "loans" you are thinking of. Car loans, Home Loans, Student loans, etc. That's where you get a big chunk of money (e.g. $20,000 to buy a car) and then you make a fixed payment every month until you pay it off (e.g. $390 per month).

Revolving accounts are basically credit cards and charge cards (American Express Blue Cash, Chase Freedom Visa, Citibank Doublecash Mastercard, Discover, etc.). Even the store cards put out by Macy's and JC Penney and Shell and so on are revolving accounts just like the major credit cards. With a revolving account the amount that you owe varies a whole lot. You might have a zero balance on a card for many months. Then you start using it, but even then one month you might owe $100 and another month you run up a much higher balance, like $900.

So with an installment account you start with a big amount --- and then (typically) gradually pay it down with the same amount each month, with the account closing when you pay it off. With a revolving account (like a credit card) the account can stay open for years and the balance owed is often $0 but can go way up or down depending on how you use it. Paying the card to $0 doesn't make the account close.

You would benefit a whole lot from learning real basic stuff about credit, including credit reports and FICO scores and what the three credit bureaus are and so forth. Maybe try googling things like CREDIT 101 or INTRODUCTION TO CREDIT or CREDIT BASICS. You might want to spend sometime with the stickies here on the forum that give basic overviews. This might take you a few weeks.

After you have done that for a while, then be sure to read this, which gives an overview of the big categories for computing your FICO score:

http://www.myfico.com/CreditEducation/articles/

Finally, when you feel like you really have a solid handle on that, you'll be ready to learn the ins and outs of how installment loans affect your score. The first two posts on this thread will do that, but it assumes first that you already know a lot of the basics, like the difference between revolving credit and installment loans and many other similar things.

http://ficoforums.myfico.com/t5/Understanding-FICO-Scoring/Adding-an-installment-loan-the-Share-Secu...

Anonymous · ‎08-09-2016

Thank you CreditGuy! I was hesitant to pay a credit card off as my husband only has 3. It makes sense though that the account will stay open so it will not drop the score.

We are applying for a mortgage and I'm scared to do anything too drastic as I've worked so hard to get his scores up!