topic Will score go up dramatically after a consolidation? in Credit Cards

Will score go up dramatically after a consolidation?

shasta — Thu, 14 Feb 2013 02:15:13 GMT

As I wait on a consolidation loan for my credit cards, it will reduce my utilization to 0%. But, the new loan will show up as a 100%, correct? Does it not matter as much because it is an installment loan? I am trying through prosper.com.

Should I leave 9% or so on my credit cards, instead of paying them off in full?

I am also an authorized user on my ex's CHASE credit card. If she pays that off, does that hurt or help my score?

If none of these things help my score, I will be disappointed. The consolidation loan will definitely help me to pay everything off in a set time, but I was hoping for a big score boost also...........LOL.

Re: Will score go up dramatically after a consolidation?

Sevenfeet — Thu, 14 Feb 2013 03:09:32 GMT

You're confusing the point of an installment loan versus a revolving loan. An installment loan means you have taken possesion of a specific product (or in this case, service) and you have agreed to pay that amount to $0 in a mutuallu agreed amount of time. Think a car loan, furniture loan, appliance store loan, etc. All of these loans by their nature will begin at 100% and work themselves down to 0% (paid in full).

That's different than a revolving loan which is designed to allow you to borrow money against a certain cap, repay it, and borrow again for as long as you keep the terms of the agreement. So credit cards are just another form of a line of credit that falls into this category.

I think lenders expect installment loans to begin unpaid and work their way down, so they are calculated differently against your score. Scores for lines of credit are calculated by the utilization of the product. Scores for both installments and revolving debts are impacted negatively by baddies, regardless. I would think your scores would increase getting your debts out of the revolving side but if you had baddies before that led you to a consolidation loan, then they will still weigh you down regardless.

Re: Will score go up dramatically after a consolidation?

Walt_K — Thu, 14 Feb 2013 04:10:10 GMT

Yes, it will help your score. Utilization on installment loans is essentially ignored.

You don't need to leave a 9% balance on your CCs. The 9% rule is an example of a bad game of telephone. People repeat it incorrectly constantly. I wish they would make a sticky about that rather than the 3x Amex CLI policy.

For optimum scoring, the general rule of thumb is to let only one card report a balance, the rest should report $0. On that one card, most people see the best results by letting 9% or less of that one card's CL report (not 9% of your total CLs). It's going to vary by person whether 1%, 2% etc. is your sweet spot, but a lot of people find that it's closer to 1% than 9%.

Remember, this is what you are letting report. That does not mean you carry a 9% balance constantly and pay interest. You let that amount report by letting it post to your statement, then you pay in full and avoid interest. Utilization always rounds up, so letting $1 report will get you 1%.

If you are an AU on your ex's card, and that card is reporting to your CR, then yes, that is going to factor into your utilization.

Re: Will score go up dramatically after a consolidation?

improvingmycredit — Thu, 14 Feb 2013 09:27:39 GMT

@shasta wrote:
As I wait on a consolidation loan for my credit cards, it will reduce my utilization to 0%. But, the new loan will show up as a 100%, correct? Does it not matter as much because it is an installment loan? I am trying through prosper.com.

Should I leave 9% or so on my credit cards, instead of paying them off in full?

I am also an authorized user on my ex's CHASE credit card. If she pays that off, does that hurt or help my score?

If none of these things help my score, I will be disappointed. The consolidation loan will definitely help me to pay everything off in a set time, but I was hoping for a big score boost also...........LOL.

Hey shasta!

You should get a bump in scores because of the utilization of all your revolving accounts will be lowered. However, you should also experience a counter to this score improvement because there will be a hit to your AAoA and the credit inquiry (only specific to the CB they pull on the inq). This hit will be dependent upon how much lower your AAoA goes and if it moves you to a new bucket but I believe you will see a good increase in your scores.