topic Need a little advice in Understanding FICO® Scoring

Need a little advice

Anonymous — Fri, 17 May 2019 01:27:43 GMT

I have four credit cards (total 88% utilization). $1570/$2000, $720/$1,250, $1,740/$2,000, $4,900/$5,000. My current scores are 642, 645, 650. Should I see a bump up in scores since I'm geting ready to bring the first three down to $0 next week?

Re: Need a little advice

Caardvark — Fri, 17 May 2019 01:40:58 GMT

You'd be better off taking the money and spreading across all the cards to get them below 48.9% utilization. This will net you a better score improvement.

Re: Need a little advice

Anonymous — Fri, 17 May 2019 01:42:59 GMT

If you are bringing 3 near maxed out cards down to $0 reported balances, you'll see a significant score increase. I'm assuming you mean the three lowest balance accounts and that you'd be leaving the maxed out $5000 credit line? If so, you'd be taking your aggregate utilization from 88% across two thresholds (68.9%, 48.9%). Depending on your profile, that could be good for 30-40 points. What you'll want to then do ASAP is get your maxed out $5000 limit card down below 48.9% utilization, but even 68.9% or less on that account will help. Good job paying down/off your revolving debt... now you just need to not let it creep back up.

Re: Need a little advice

HighAchiever — Fri, 17 May 2019 01:59:36 GMT

@Caardvark wrote:
You'd be better off taking the money and spreading across all the cards to get them below 48.9% utilization. This will net you a better score improvement.

Based on the information that you have provided, I agree with Caardvark. But having cards down, at or near zero is always good for your profile...

Re: Need a little advice

Anonymous — Fri, 17 May 2019 01:46:39 GMT

@Caardvark wrote:
You'd be better off taking the money and spreading across all the cards to get them below 48.9% utilization. This will net you a better score improvement.

Eh, tough to say. The penalty for his highest utilization card being maxed out verses below 48.9% utilization likely isn't significantly more than the penalty he's taking currently for having 100% of cards with balances verses his proposed 25%. It could be (say) 18 points verses 14 points, for a difference of 4 points. That's talking FICO 8 scores of course. If we're talking mortgage scores, paying more accounts to $0 as planned would be the smarter move in terms of scores.

Re: Need a little advice

Caardvark — Fri, 17 May 2019 01:53:01 GMT

You may be right that the scoring benefit of paying all below 48.9% (vs paying three to $0) is small but, all else equal, I'd still take the four extra points. Plus, I'd think having all cards below 48.9% might reduce the risk of AA (vs. keeping a max'd out card).

@Anonymous wrote:
Eh, tough to say. The penalty for his highest utilization card being maxed out verses below 48.9% utilization likely isn't significantly more than the penalty he's taking currently for having 100% of cards with balances verses his proposed 25%. It could be (say) 18 points verses 14 points, for a difference of 4 points. That's talking FICO 8 scores of course. If we're talking mortgage scores, paying more accounts to $0 as planned would be the smarter move in terms of scores.

Re: Need a little advice

Anonymous — Fri, 17 May 2019 02:02:05 GMT

Could be the case, no way to know for sure.

Personally I think the interest argument is stronger than anything else yet presented and that saving money should be priority number one unless the OP has an important app coming up and needs to extra points for that reason. That's just my opinion though and if interest isn't a factor for the OP, no need to talk about it.

Better off would probably be a happy medium type scenario, where he takes 2 accounts down to $0 and then splits the remaining paydown between the other two accounts thus getting them both to a decent place with the highest landing perhaps in the 48.9%-68.9% range utilization wise.

Re: Need a little advice

Anonymous — Fri, 17 May 2019 10:30:11 GMT

Thanks everyone! I have two goals...get rid of the high interest balances (the $5k CL card has a decent interest rate so I was leaving it for last but I do make the payments timely and usually more than the min) and prepare for an auto loan. I saved up $10k for a down payment and will finance about $18k. Maybe I should take some of that $10k and pay down the last CC too? It might save me some interest on the auto loan.

@Caardvark wrote:
You may be right that the scoring benefit of paying all below 48.9% (vs paying three to $0) is small but, all else equal, I'd still take the four extra points. Plus, I'd think having all cards below 48.9% might reduce the risk of AA (vs. keeping a max'd out card).

@Anonymous wrote:
Eh, tough to say. The penalty for his highest utilization card being maxed out verses below 48.9% utilization likely isn't significantly more than the penalty he's taking currently for having 100% of cards with balances verses his proposed 25%. It could be (say) 18 points verses 14 points, for a difference of 4 points. That's talking FICO 8 scores of course. If we're talking mortgage scores, paying more accounts to $0 as planned would be the smarter move in terms of scores.

Re: Need a little advice

Anonymous — Fri, 17 May 2019 12:12:29 GMT

@Anonymous wrote:
Thanks everyone! I have two goals...get rid of the high interest balances (the $5k CL card has a decent interest rate so I was leaving it for last but I do make the payments timely and usually more than the min) and prepare for an auto loan. I saved up $10k for a down payment and will finance about $18k. Maybe I should take some of that $10k and pay down the last CC too? It might save me some interest on the auto loan.

I would rethink your down payment and possibly use that money elsewhere. I'm not sure what interest rate you're $5k CC sits at or what rate your auto loan will be, but chances are putting the money toward the CC first would make more sense. I've never put a penny down for any car I've gotten, so that shows you where my mindset is on that. Also you wrote above "usually" more than the minimum. You want to always pay more than the minimum, several times it if you can (which you can, since you have the funds to pay off 3 other CCs that are thousands of dollars). Doing this is simply a far better look and it exhibits a lesser amount of risk in the eyes of your lender. Just something to keep in mind going forward!

Re: Need a little advice

Anonymous — Fri, 17 May 2019 12:46:31 GMT

Thanks!

Re: Need a little advice

Caardvark — Fri, 17 May 2019 15:28:04 GMT

To add to BBS' comments, an auto loan is nearly always going to have an interest rate far lower (better) than a credit card, since it is a secured loan. And, if you are going to have debt, you want to have the lowest cost debt possible. So... paying the credit cards down is very likely the best idea since their interest rate is probably >3x that of an auto loan.

Also, to expand on something I mentioned in an earlier post, your current utilization puts you at risk of being balance chased as the cards are paid down. This is even more likely if you routinely pay only the minimum payment or slightly above it.

Re: Need a little advice

Anonymous — Fri, 17 May 2019 21:48:49 GMT

Great advice. Thanks! Makes perfect sense.