topic Get those credit cards paid down NOW! If you reduce your... in Understanding FICO® Scoring

Help me get 26 points over next two months

Anonymous — Fri, 16 Mar 2007 21:34:09 GMT

I have three credit cards and one jewelry account to work with in paying down my balances. I need to raise my score by 26 points in order to qualify for a mortgage and receive my pre-approval. I had a pre-approval over summer, but it had expired/I couldn't find house & since then my score declined. Is it better to pay off each credit card or to pay each card down by $200 each month over the next two months? Card limits/balances: 1000/733, 700/436, 500/433, (jewelry-1500/375) I need the 26 points to have a certain score to qualify for the no-money down subprime mortgage loan or right now-I would qualify for the 3% down FHA. Usually my score is constantly change, and now it has been the same for a month now. Please help! I want to spend money paying down my cards, but at the same time I want to save for closing costs/sales agreement deposit/inspection cost. So I want to spend my money in the best way possible...I do not have anyone to add me to their cards. I did pay off a car loan balance-I was a co-signer. The update has not reached CR yet. I still have another active car loan. I am also trying to pay any outstanding bills; so they don't reach the collection agency nor my credit report and pull down my score....pls help!!!

Get those credit cards paid down NOW! If you reduce your...

Anonymous — Sat, 17 Mar 2007 02:44:23 GMT

Get those credit cards paid down NOW! If you reduce your 500/433 and your 1000/733 to less than 33% you should get that 26 points easily (assuming no new debts, inquiries, late payments, collections). Remember 30% of your score is based on debt balance vs. credit limit. Plus with an FHA loan the seller can pay up to 6% of your closing costs.. Tell your realtor to ask for that in the sales contract offer!

Your utilization is hurting you big time. 733/1000 = 73%...

Anonymous — Sat, 17 Mar 2007 07:35:07 GMT

Your utilization is hurting you big time.

733/1000 = 73% utilization
436/700 = 62% utilization
433/500 = 87% utilization
375/1500 = 25% utilization

Overall utilization = 53% (1977/3700).

When I pay down utilization, I would pay down everything to the same percentage. Say, for example, I had $500 to pay everything down with, and the minimum payment was 3% on each card. I'd start with that, then divide the rest so it would get the higher-util items paid down.

This will seem like a lot of work, but if you have a spreadsheet, it'll help, and you can re-use it.

Column A: amount owing
Column B: credit limit
Column C: % utilization (amount owing / credit limit)
Column D: value in column A * value in column C (for the first item, that would be 538)
Column E: Amount you have to pay * value in column D / sum of column D (e.g. 500 * 538 / 1217 = $221 for first item)

So if you paid on your cards:
$210 -> new util = 52%
$106 -> new util = 47%
$147 -> new util = 57%
$37 -> new util = 23%
----
$500 (total)

If you had $200 to pay down with, the amounts and new util would be:
$84 -> new util 65%
$43 -> new util 56%
$59 -> new util 75%
$15 -> new util 24%

Make sure you always pay at least the minimum (it's a little harder on the lower-util cards; my own spreadsheet is more complicated, but this should give you the idea).

Ideally, you want to get the util as low as possible; I believe the typical utilization is around 27%.

Message Edited by Skiffy on 03-17-2007 12:35 AM

First...don't be in an all-fired hurry to get a house. T...

Anonymous — Sat, 17 Mar 2007 19:40:16 GMT

First...don't be in an all-fired hurry to get a house. The market has a ways to go--downwards--before it picks up again.

Second, pay down those balances. The PPs are right in that those high balances are hurting your FICO. Paying them down is the fastest way to raise your score.

Third--did I mention not to be in a hurry when buying a home? If you barely qualify for a loan now, consider what being patient and waiting another six months and raising your FICO further could do for your interest rate...