topic Re: How best to pay down credit card balances to improve a FICO mortgage scores in Understanding FICO® Scoring

How best to pay down credit card balances to improve a FICO mortgage scores

Anonymous — Mon, 24 Apr 2017 17:04:08 GMT

I have a feeling CreditGuyInDixie and BrutalBodyShots might have an answer to my question here. If you do, thanks in advance, I already learned some valuable things from both of your posts. Hope to hear from you guys in particular.

In the list at the bottom, First number is owed amount/second number is credit limit.

As you can see, credit utilization is very high. Moreover, I refinanced my first mortgage in December (5.25% down to 3.625%) which is good, but as a new mortgage account, and with the hard credit pulls associated it reduced my FICO 8 scores by rougly 25 points.

They are now at 674equifax/685 Trans/683 exper

I need Mortgage FICO to be at 680. Transunion is there already, at 685, the other two are a bit under at 671 Equifax and 674 Experian.

The goal is to pay off all credit card debt with a HELOC, which I qualify for once my mortgage score is 680 on all 3 bureaus.

Last week I paid 15,000 towards my 21,000 balance on USAA Visa 21405/22000 which is now at 6405/22,000 or 28% utilization

Its only been one day since USAA reported, but MYFICO is already showing Experian as reporting the $15,000 drop in balance. No credit score change yet.

The other two will show up in the next few days.

First question is: When would you expect to see any change in my score from this action(paying down $15,000 on one card)?

Second question is, I have another $28,000 I could use to pay down my other credit card debt. How should I deploy this money to best increase my scores?

I could pay off all of some of the balances. Distribute the $28k evenly. Some other combination?

It is irrelevent what the intrest rates are, the only consideration here is FICO score, and to see a positive change ASAP, because as soon as that happens, the mortgage refi will pay off ALL these balances that very day. So I only want to know how to best deploy this $28k before the refi to help my FICO score rise on all three bureaus as soon as it can.

And I want to know how long it might take to see an actual change in the scores from this payoff activity.

Other than the too high credit utilization, I have no negative items on the report. No late payments ever, no collections.

USAA Visa WAS 21405/22000 as of last thursday, is now 6405/22,000

Chase 14457/44700 Closed account- in payoff

Chase Amazon 2436/2500

CitiBank-old 5395/5600

*CitBank 5654/5750

*Discover 14153/14400

*Synchrony Bank Amazon 0/3500

Synchrony Bank PayPal 5477/5600

USBank Visa 12869/12900

USBank REI MC 24388/25000

Wells Fargo Car Loan 753/$1130

Thanks

Re: How best to pay down credit card balances to improve a FICO mortgage scores

EW800 — Mon, 24 Apr 2017 17:58:03 GMT

Congrats on paying down such a big chunk on the USAA account! I know that feels great!

It will be interesting to see what the thoughts are of our experts, as I have a fear that you may not see much of a score drop because there are still about seven other accounts that have 90% to nearly 100% utilization. I did not calculate how much this large payment brought down your total revolving utilization, however unless it made a decent dent, I think having so many other high utilization accounts could still haunt you. I may be wrong though. Like I said, interested in what our experts have to say.

Again, congrats on the large payment though!

Re: How best to pay down credit card balances to improve a FICO mortgage scores

Anonymous — Mon, 24 Apr 2017 18:45:14 GMT

Yes you are correct. Total credit utilization, even with that $15,000 payment went from 90% down to 76%. Still not great I know. Indeed, the MyFico credit score similator predicts the Fico Score 8 will do the following:

Equifax 674 +30 New score 704

Transunion 683 +15 New score 698

Experian 682 +20 New Score 702

Those are FICO score 8s, and its the mortgage scores I need to go up.

They, are at

Equifax 672

TransUnion 685

Experian 671

My goal is 680 or better on all 3 mortgage scores because the bank I am using pulls credit from all three bureaus, and just takes whatever score gets back to them first. Nice and random with things that totally affect your life, isn't it.

So, will see if the FICO Score Simulator is "in the ballpark" as the MyFico literature says it is. Do any experts here know how accurate it is? My questions were:

First question is: When would you expect to see any change in my score from this action(paying down $15,000 on one card)?

Second question is, I have another $28,000 I could use to pay down my other credit card debt. How should I deploy this money to best increase my scores?

I could pay off all of some of the balances. Distribute the $28k evenly. Some other combination?

If I implement the plan inferred by the second question, that is, pay off another $28,000 of debt, then my total credit utilization will go down from its current 76% down to 51%.

I know that should eventually help things, but right now what I am asking is, how long after paying the debt down should I expect to see a change in FICO score. AND, if I do indeed choose to pay down $28000 more, how best to allocate that $28k to the various cards to maximize the effect to FICO score.

Remember, in the end, all this debt will be paid off my the HELOC, so I am no concerned too much with anything but how the FICO scores are affected at this time. I just want my Mortgage FICO scores above 680 at all three bureaus so I can qualify for the loan.

Thanks for the congrats, I appreciate it.

Re: How best to pay down credit card balances to improve a FICO mortgage scores

Anonymous — Mon, 24 Apr 2017 19:15:09 GMT

There are three factors related to CC balances:

(1) Total utilization (all cards and their limits considered together)

(2) Individual utilization (each card considered by itself)

(3) Number of cards showing a positive balance

#1 matters most, but it will be affected the same no matter which strategy you use.

If you were asking purely about FICO 8 (not the mortgage models), I'd say focus on #2. FICO 8 cares about #3, but not it's a weaker emphasis when one's individual U is extremely high (as yours is).

But the mortgage models do care about #3, more than FICO 8 does. So hard to say!

For sure I can tell you that you need to get all your cards below 69% individual. After that it's a crap shoot. Does it make sense to create a bunch of $0 balances on your low limit cards? Or should you move toward getting as many under 49% as you can? Or should you do both/ (Get a few under 49% and create a couple $0 balances?)

Thomas Thumb may have an opinion.

Re: How best to pay down credit card balances to improve a FICO mortgage scores

Anonymous — Mon, 24 Apr 2017 19:22:49 GMT

Thanks CreditGuyInDixie, that is illuminating.

@Anonymous wrote:
There are three factors related to CC balances:
     (1) Total utilization (all cards and their limits considered together)
     (2) Individual utilization (each card considered by itself)
     (3) Number of cards showing a positive balance

#1 matters most, but it will be affected the same no matter which strategy you use.

If you were asking purely about FICO 8 (not the mortgage models), I'd say focus on #2. FICO 8 cares about #3, but not it's a weaker emphasis when one's individual U is extremely high (as yours is).

But the mortgage models do care about #3, more than FICO 8 does. So hard to say!

For sure I can tell you that you need to get all your cards below 69% individual. After that it's a crap shoot. Does it make sense to create a bunch of $0 balances on your low limit cards? Or should you move toward getting as many under 49% as you can? Or should you do both/ (Get a few under 49% and create a couple $0 balances?)

Thomas Thumb may have an opinion.

I will be interested to hear what Thomas Thumb has to say, but, $28,000 is indeed enough to pay down ALL the cards below the 69% level on each one. I will not be able to get ALL the balances to $0, but I could do some.

What do you think about the one Chase card that is closed and in payoff. Should I pay it down at all at this juncture? Since it is closed, I don't think its individual credit utilization will change. I assume it is factored in in Total Util though.

By the way, how long do you think it will take for the effects of these paydowns to be seen in the credit scores? Nothing has happened yet, but its only been a few days since the $15k payoff.

Thanks again.

Re: How best to pay down credit card balances to improve a FICO mortgage scores

Anonymous — Mon, 24 Apr 2017 19:40:52 GMT

@Anonymous wrote:

By the way, how long do you think it will take for the effects of these paydowns to be seen in the credit scores? Nothing has happened yet, but its only been a few days since the $15k payoff.

Thanks again.

Your scores are always based on what is in your reports at the inbstant that the score is generated.

So your question is really: How long do you think it will take for the new CC balances to get reflected in my credit reports? Do you see why that is the best way to ask that?

Best answer is to figure out when your next statement will be. Then add about 10 days to that. That's a rough estimatee of when the new balance for that particular card will be reflected in your reports. Sometimes it is quicker than 10 days -- only 5 say. Sometimes it is longer, like 12 or 13.

Re: How best to pay down credit card balances to improve a FICO mortgage scores

Anonymous — Mon, 24 Apr 2017 19:58:26 GMT

Ah yes, I do see how that is a better way to ask the question. Thanks.

What is confusing me is Experian already reported the $15,000 payoff to the USAA card(about 5 days after the statement closed) to MyFico,but there was no change in score. I had thought since Experian knows about the balance change, then my score might be better at the moment they reported.

Is the delay normal, or is it an indication the Experian score wont change at all? Or will it simply occur later on, like in the 10,12,13 days as you mentioned. I did time the payment to hit within last months statement period, and I called the bank to verify they would be reporting the new balance, and indeed, Experian reported the $15,000 payment to myfico, yet, no score change.

Re: How best to pay down credit card balances to improve a FICO mortgage scores

Anonymous — Mon, 24 Apr 2017 21:11:43 GMT

If I am understanding you right, you are saying that:

* You use the myFICO Ultimate 3B as your tool for monitoring reports and scores

* You received an "alert" from your myFICO monitoring product showing that the card had been paid down by 15k at EX

* With that alert, it gave you your FICO 8 score and that was the same FICO 8 score as it had been before the alert

Does that sound right?

Re: How best to pay down credit card balances to improve a FICO mortgage scores

Anonymous — Mon, 24 Apr 2017 21:16:37 GMT

@Anonymous wrote:
If I am understanding you right, you are saying that:
     * You use the myFICO Ultimate 3B as your tool for monitoring reports and scores
     * You received an "alert" from your myFICO monitoring product showing that the card had been paid down by 15k at EX
     * With that alert, it gave you your FICO 8 score and that was the same FICO 8 score as it had been before the alert

Does that sound right?

Yes. That is exactly right.

Re: How best to pay down credit card balances to improve a FICO mortgage scores

Anonymous — Mon, 24 Apr 2017 22:06:23 GMT

That is a bit of a surprise. If the 15k was going to give you a score boost you would have seen it in the alert. I am wondering if that suggests that, once you have done enough damage to your score with bad utilization, you can't do more. If so, perhaps you are right now slowly wending your way back from the 9th circle of utilization hell. You went from the 9th to the 6th but it's still hell so you won't get any relief until you get to Purgatory (e.g. perhaps total U of 79% with half your cards < 69%).

Just speculating. Regardless you are moving in the right direction.

Re: How best to pay down credit card balances to improve a FICO mortgage scores

Anonymous — Mon, 24 Apr 2017 22:08:31 GMT

FICO algorithms can be sensitive to changes, but typically that is only dependent on the number of factors you have, and how close you are to the maximum number of points in that section. The majority of your cards are still maxed out, more than half of your cards have a balance, your installment loan utility is higher than optimal, and your overall utility is still very high. It's very possible that you are still receiving the maximum number of points from the debt category for your profile and simply reducing one card from a maxed out status would not do enough to get you more points.

Without knowing the exact FICO algorithm to determine where that threshhold is, I'd imagine once you get one of the 3 factors CG gave you under control, you may not see any change at all, even small one.

I imagine once you hit that 69% dent or get fewer than half your cards with a balance, you'll start to see some movement. Getting your util on the small installment loan could pick up a few points, too.

Re: How best to pay down credit card balances to improve a FICO mortgage scores

Anonymous — Mon, 24 Apr 2017 22:16:11 GMT

@Anonymous wrote:
That is a bit of a surprise. If the 15k was going to give you a score boost you would have seen it in the alert. I am wondering if that suggests that, once you have done enough damage to your score with bad utilization, you can't do more. If so, perhaps you are right now slowly wending your way back from the 9th circle of utilization hell. You went from the 9th to the 6th but it's still hell so you won't get any relief until you get to Purgatory (e.g. perhaps total U of 79% with half your cards < 69%).

Just speculating. Regardless you are moving in the right direction.

I'll let you know how it shakes out in the end.So, you seem to know what the utilization percentages I should shoot for on each card. I am hearing you say, get as many as I can down to 69% or under.I can achieve that with the $28,000 I have to play with, and also get 4 of the smaller ones down to 0%. Does that sound like a good plan?What are the utilization percentages that matter? You just mentioned a cutoff of sorts at 69%, and I have heard 9% as another one, are there others that matter?I think you mentioned Thomas Thumb might have an opinion on how best to allocate the $28,000 to pay off the cards, for maximum FICO effect.Here they are again from earlier in the thread with that in mind.USAA Visa WAS 21405/22000 as of last thursday, is now 6405/22,000Chase 14457/44700 Closed account- in payoffChase Amazon 2436/2500 CitiBank-old 5395/5600*CitBank 5654/5750 *Discover 14153/14400 *Synchrony Bank Amazon 0/3500 Synchrony Bank PayPal 5477/5600 USBank Visa 12869/12900 USBank REI MC 24388/25000 Wells Fargo Car Loan 753/$1130

Re: How best to pay down credit card balances to improve a FICO mortgage scores

Anonymous — Mon, 24 Apr 2017 22:32:50 GMT

@Anonymous wrote:

I've had significant score changes at 69, 29, and 9.

Re: How best to pay down credit card balances to improve a FICO mortgage scores

Anonymous — Mon, 24 Apr 2017 22:39:49 GMT

Nobody know where the various cutoffs are. About the only cutoff that is known with certainty is 8.99% for total utilization (below that all seems to be the same). There could be different cutoffs depending on what "scorecard" your profile falls into. Remember that people are just engaging in a speculative attempt to "backwards engineer" algorithms that FICO is very close lipped about.

There's some guesswork that the cutoffs all occur around multiples of 10%:

79.9%, 69.9%, 59.9%, etc.

But again that's guesswork.

What's certain is this:

penalties for total utilization start very low (at 9.001%), they get worse as you get higher, and they matter a lot

individual U can hurt you a lot but only when you are much higher than for total U

the mortgage models do like it when you can show some cards reporting $0

So that's why I said get everything under 69% (just a guess on my part) to begin with. Then if you can very cheaply create some $0 balances do that, but only if you can do it very cheaply. (E.g. cards that have $500 or $1000 credit limits.) Then do your best to get a solid number of cards under 49%.

That's guesswork. What's certain is that paying down cards is good.

If you can get TT to chime in he will tell you to watch your reports every week to make sure that the issuers don't lower your credit limits once you have begun paying down your debt.

Re: How best to pay down credit card balances to improve a FICO mortgage scores

Anonymous — Mon, 24 Apr 2017 22:44:06 GMT

@Anonymous wrote:
Nobody know where the various cutoffs are. About the only cutoff that is known with certainty is 8.99% for total utilization (below that all seems to be the same). There could be different cutoffs depending on what "scorecard" your profile falls into. Remember that people are just engaging in a speculative attempt to "backwards engineer" algorithms that FICO is very close lipped about.

There's some guesswork that the cutoffs all occur around multiples of 10%:
        79.9%, 69.9%, 59.9%, etc.

But again that's guesswork.

What's certain is this:
      penalties for total utilization start very low (at 9.001%), they get worse as you get higher, and they matter a lot
      individual U can hurt you a lot but only when you are much higher than for total U
      the mortgage models do like it when you can show some cards reporting $0

So that's why I said get everything under 69% (just a guess on my part) to begin with. Then if you can very cheaply create some $0 balances do that, but only if you can do it very cheaply. (E.g. cards that have $500 or $1000 credit limits.) Then do your best to get a solid number of cards under 49%.

That's guesswork. What's certain is that paying down cards is good.

If you can get TT to chime in he will tell you to watch your reports every week to make sure that the issuers don't lower your credit limits once you have begun paying down your debt.

What can you really do if they do lower your credit limits? I don't think I have any power to control that, do I?

Re: How best to pay down credit card balances to improve a FICO mortgage scores

Anonymous — Mon, 24 Apr 2017 23:48:57 GMT

You could call them if it happens, explain that you are working hard on lowering your balance, and that they can be certain you will be making at least triple the minimum payment every month, or more if they want you to do -- but you really need them to work with you on this -- and that by lowering your CL as you pay it down they would end up keeping your utilization % very high.

This is why you need to be making large payments as swiftly as possible on every card -- but still holding on to enough cash that you can be confident that you will be making > 3x the minimum payment on every card.for the next four months in a row. You have gotten yourself into a dangerous place with having almost all cards maxxed out, and you are vulnerable to having harsh adverse action taken against you.

I am no expert regarding having all my cards maxxed out, since my utilization is always < 4% usually just a bit under 1%. But I do know that what I just described can and does happen to people in your situation. If you want to explore it further, you can go to the Rebuilding forum, create a new thread, and ask what you should do if it DOES happen to you (i.e. how best to negotiate with your issuers in that event).

Re: How best to pay down credit card balances to improve a FICO mortgage scores

Anonymous — Tue, 25 Apr 2017 00:24:07 GMT

@Anonymous wrote:
You could call them if it happens, explain that you are working hard on lowering your balance, and that they can be certain you will be making at least triple the minimum payment every month, or more if they want you to do -- but you really need them to work with you on this -- and that by lowering your CL as you pay it down they would end up keeping your utilization % very high.

This is why you need to be making large payments as swiftly as possible on every card -- but still holding on to enough cash that you can be confident that you will be making > 3x the minimum payment on every card.for the next four months in a row. You have gotten yourself into a dangerous place with having almost all cards maxxed out, and you are vulnerable to having harsh adverse action taken against you.

I am no expert regarding having all my cards maxxed out, since my utilization is always < 4% usually just a bit under 1%. But I do know that what I just described can and does happen to people in your situation. If you want to explore it further, you can go to the Rebuilding forum, create a new thread, and ask what you should do if it DOES happen to you (i.e. how best to negotiate with your issuers in that event).

Thats good advice, thanks. I have had some luck pleading my case at times, but not back in 2208-2009 when this situation was created. At that time, I had $200,000 in available credit overall, and every balance was a 4 or 5 year special low rate, 0% to 5.99%. I had never missed any payments on anything in 20+ years.

None the less, as the economy tanked, and me at about 60% utilization, some card compenies either unilaterally closed my unused accounts, or cut the credit limit to within $50 of the current balance. And then, my long term plan to refi all that debt into the house was delayed as the value was flat for several years. Now however, the house value is back up, I have the cash to completly pay off all this debt if need be (If FICO will not cooperate) and after I refi my HELOC I will have substantial reserves from the equity. I have another fully paid off home, so using all the equity in this one is just part of the plan. So I will be ok, one way or the other. I really appreciate your help. It does hurt me financially to lose my positions in all my bond funds, it is a catch 22 situation that you have to pay down credit card debt before you can get a loan that will be used to refinance that same debt. and, it is also a catch 22 situation that card companies can shut down your credit lines and thus hose your utilization, when you have never missed a payment. The system does not adequately measure risk in every case, and it encourages behavior that is not in the finacial intrest of bank customers. That is, the back should not want me to lose positions in income producing bond funds, just to pay down cards and get a better FICO number, when in the end, once I have that loan, the very same funds will be available to pay off that same debt. In the end, I am no more credit worthy than I was at the beginning.

It was all worth it though, because from 2005-2010, in spite of the recesion, I managed to travel the world. take 5 years off work to do it, start a new business that allows me, now,to work a 4 day week in the same field I was in before, and all in all be in a better position than I was at the beginning. It is true, the worst case scenario that I modeled back in 2005 when I started this road, came true. But if the only price I had to pay to achieve all that freedom was a lowered FICO score, and the need to incur some transaction costs in selling my Bond funds to pay off debt and make the FICO go up, well, so be it.

The only thing is, I planned for this day, and have the cash to pay down debt. For someone in my exact shoes, that got there not through a plan but because of sickness or involuntary job loss, or any number of other things they could not control, this FICO scoring system and the way it works is totally broken and unfair. The algorithm does not predict default accurately enough to be used in the way it is being used in our society right now, and I think it will take legislation to fix it.

I would say, we need a new system, that uses a predictive algorithm that banks would run on a person to show where they would be AFTER they get a loan. And then the bank can control paying off and closing cards to their hearts content, and the person in question would end up with a score and financial situation they, and the bank wanted in the first place. Chicken and Egg classic problem, and it would be hilarious if not for the damage and hardship this situation causes.

Just my two cents. Thanks again for the help. I'll report to this thread what happens in the end with my situation. maybe it will help someone. May have some more questions as I go along. Looks like I got a few more weeks of work ahead at least. I'm used to it though, its been 3 years since all my low rates expired. I don't think they will reduce my limits now, as some of these cards were issued to me fairly recently, when I already had these scores. Like I said, the scores are 25 points down right now mainly because I refinanced the 1st mortgage in December. Prior to that, they were hovering around 711 for years.

Re: How best to pay down credit card balances to improve a FICO mortgage scores

Anonymous — Sat, 29 Apr 2017 18:20:42 GMT

It turns out the $15K paydown to one card plus the passage of one more month in time did improve the FICO 8 scores a little bit after all.

Equifax +6 674--> 680

Transunion +1 683--> 684

Experian +4 678--> 682

I have now directed an additional $27,000 towards paying down the other balances, roughly in the way CreditGuyinDixie and others recomended.

I reduced the balances to be below 69%, and paid off two more all the way so there are now 6 accounts at 0% utilization, 1 at 56%, 4 at 65%, 1 at 89% They were all at ~97% before.

Total revolving credit utilization is now at 65%, down from 97%

Most of these card companies will not do mid-cycle report updates (I asked) and so these balances will not completely reflect in the credit reports until about 5/27.

So we will see what further positive affect all this might have on the FICO scores by the end of this month.

Thanks again for the advice from those in this forum.

Re: How best to pay down credit card balances to improve a FICO mortgage scores

SouthJamaica — Sat, 29 Apr 2017 19:51:44 GMT

@Anonymous wrote:
It turns out the $15K paydown to one card plus the passage of one more month in time did improve the FICO 8 scores a little bit after all.

Equifax +6 674--> 680

Transunion +1 683--> 684

Experian +4 678--> 682

I have now directed an additional $27,000 towards paying down the other balances, roughly in the way CreditGuyinDixie and others recomended.
I reduced the balances to be below 69%, and paid off two more all the way so there are now 6 accounts at 0% utilization, 1 at 56%, 4 at 65%, 1 at 89% They were all at ~97% before.

Total revolving credit utilization is now at 65%, down from 97%

Most of these card companies will not do mid-cycle report updates (I asked) and so these balances will not completely reflect in the credit reports until about 5/27.

So we will see what further positive affect all this might have on the FICO scores by the end of this month.

Thanks again for the advice from those in this forum.

Congratulations on getting your scores improved, and kudos for reporting back to us on your progress.

Re: How best to pay down credit card balances to improve a FICO mortgage scores

Anonymous — Sat, 29 Apr 2017 20:47:00 GMT

Thanks, I'll report back what happens at end of month.

A couple questions concerning mortgage FICO scores.

1. Has anyone figured out a ratio or a formula to figure out mortgage FICO scores from FICO 8 scores? I know I can buy them but for that I'll wait till end of month.

2. When the bank pulled credit back in December just after I completed a refi on my first mortgage, they came up with a score of 665, from Experian, and a reported scoring range from 325-850. Only, the scoring range for all the Mortgage scores that I have access to on the MyFico 3B report, are all scored from 300-850. Is the scoring model USBank is using for a HELOC refi different than the mortgages scores I have access to? What could they be using with a scoring range from 325-850?