topic Re: I have 10k to use...What do I pay off? in General Credit Topics

I have 10k to use...What do I pay off?

Anonymous — Mon, 07 Jul 2008 20:38:42 GMT

I am closing on my house in a few months and need a quick boost to my credit score to get an ever better rate. What would you do with 10k to get your score up? Is it best to apply it to one balance, or spread it out? Here is what I have:

Wells Fargo LOC - Balance $16,300 - Credit Line $16,500

Wells Fargo - Balance $6,200 - Credit Line $6,500

WAMU CC - Balance $1,700 - Credit Line $3,000

CITI CC - Balance $4,200 - Credit Line $5,300

Compass CC - Balance $0 - Credit Line $600

Household CC - Balance $0 - Credit Line $300

Legacy CC - Balance $0 - Credit Line $350

FNCC CC - Balance $0 - Credit Line $850

Is it best to get the CC's down below 50%, or apply it toward the big LOC balance? Thanks for your advice!

Message Edited by K-Dub on 07-07-2008 01:38 PM

Re: I have 10k to use...What do I pay off?

Anonymous — Mon, 07 Jul 2008 22:47:13 GMT

If this is all the open lines I'd
First make sure all accounts report less then 89% UTL per account.
Then apply the rest to the highest interest and so on. I don't think you're going to get a boost from below 50%. Might be better to ramp down the amount as fast as you can for max points by reducing the interest on the debt. The only time I noticed a further loss was when I was 90-100% maxed on a card. 50+% UTL on a individual credit card never did anything to my personal score that I noticed. But could be different for others.

The only thing that is really bad is exceeding 89% per account.

Being that you already have only 50%/4 accounts with balances out of 8 accounts is a;ready good. Had you had 5 balances I'd tell you to PIF one right away. But in your case reducing balances shouldn't change the score. So if you wanted to spread it to reduce debt per card to below 50% that would work too. I'd just bring under 89% per account actually 85% just to be safe and apply the rest to highest interest.

Message Edited by ilovepizza on 07-07-2008 06:39 PM

But what I don't know about mortgages is whether your number of balances is taken in to effect by the lender. Like are you more likely to be approved with 2 debts vs 4 debts by a manual review? Don't know. But your FICO Score will only ding your profile if you exceed 4 balances out of 8 accounts. 0-4 is fine.

I'd post this in the mortgage forum too. My answer will apply for scoring but a question to ask is does it matter if you have $10,000 in debt between 2 accounts or between 4 accounts under manual review. What will a human think? Don't know. The mortgage lender might think that balances are too high or could also say too many? If I had to guess fewer debts would look better since it is less to manage. Applying towards highest interest will reduce number of debts faster.

Message Edited by ilovepizza on 07-07-2008 06:47 PM

Re: I have 10k to use...What do I pay off?

Anonymous — Tue, 08 Jul 2008 01:23:16 GMT

Wells Fargo LOC - Balance $16,300 - Credit Line $16,500 **PAY 5K (LEAVING YOU WITH 11,300)

Wells Fargo - Balance $6,200 - Credit Line $6,500 **PAY 2k (LEAVING YOU JUST ABOVE 50%)

WAMU CC - Balance $1,700 - Credit Line $3,000 PAY **1k (TAKING YOU BELOW 50%)

CITI CC - Balance $4,200 - Credit Line $5,300 PAY **2k (TAKE YOU JUST BELOW 50%)

**if we had your interest rates, that would be better. It's always better to pay your higher interest cards first. For example if your Citi is sitting @ 0% for the next six months but Wamu is @ 20%- I would recommend paying the entire wamu balance and dividing the rest between wells fargo and your loc.

Re: I have 10k to use...What do I pay off?

Anonymous — Fri, 18 Jul 2008 19:30:19 GMT

ilovepizza wrote: If this is all the open lines I'd First make sure all accounts report less then 89% UTL per account. Then apply the rest to the highest interest and so on. Message Edited by ilovepizza on 07-07-2008 06:47 PM

Why 89% utilization? Is that a general rule to go by? Sorry if I don't follow.

Re: I have 10k to use...What do I pay off?

Anonymous — Fri, 18 Jul 2008 20:53:20 GMT

I believe that once a TL is at 85-90% (somewhere there) they consider it maxed out. Vicki

Re: I have 10k to use...What do I pay off?

marty56 — Sat, 19 Jul 2008 12:16:10 GMT

I like AlishaR's plan. I am not a big fan of asking for CLI's to reduce util but in this case I might also ask the CCC's about CLI's as long as they dont do a hard INQ.

Message Edited by marty56 on 07-19-2008 05:16 AM

Re: I have 10k to use...What do I pay off?

Anonymous — Sat, 19 Jul 2008 05:00:45 GMT

I think it is anything above 50% looks bad... If you can get them below or right at 50% it will look better than have a few @ 20% and the rest at 80.

Re: I have 10k to use...What do I pay off?

RobertEG — Sat, 19 Jul 2008 06:08:34 GMT

I concur totally with Alisha's analysis, based on what you have posted, and your goal to reduce FICO in the short term. Get as many below 50% as you can, and make sure that at least half retain zero balances upon reporting date to the CRAs.

All of this is predicated only on FICO short-term scoring. Otherwise, from a purely financial viewpoint, pay down the higher balance/ interest rate cards first. Your Wells Fargo accounts are now costing you well over $200 a month just in interest, and are at over 90% util. Util on the CITI is also near 80%. I do not know the interest rates on any of the cards, so this is speculative.

FICO scores you on overall %util, on the separate %util of each card, and on the number of cards that report balances.

I dont want to sound negative, but will offer only one further observation. You are closing on your current house, and have $10K from that transaction available to pay off your CC debt, which is good from a FICO perspective. Congrats! But that equity will then be gone from your net liquid assets after paying off your CCs, and then when shopping for a new mortgage, will not be there in their review of your overall financial status. FICO scores do not secure mortgages or mortgage rate per se. They do a finacial review, and not just a FICO snapshot.

Re: I have 10k to use...What do I pay off?

Anonymous — Sat, 19 Jul 2008 13:30:51 GMT

This post was started on the 7th... OP, have you put that 10K to use? If so, please let us know how you did.

Re: I have 10k to use...What do I pay off?

MattH — Sun, 20 Jul 2008 20:49:53 GMT

If I were you I would seriously consider talking with a financial planner.

And before you talk with any advisers, look at the following:

http://ficoforums.myfico.com/fico/board/message?board.id=generalcredit&message.id=106018#M106018

Re: I have 10k to use...What do I pay off?

fused — Sun, 20 Jul 2008 23:18:26 GMT

OP, what are your current FICOs?

Re: I have 10k to use...What do I pay off?

Anonymous — Tue, 22 Jul 2008 18:54:55 GMT

The only official score I have is TU which is 660, I get this score through WAMU. FYI, I have not paid anything yet, waiting to hear back from the mortgage broker...which is CTX Mortgage.

Re: I have 10k to use...What do I pay off?

fused — Tue, 22 Jul 2008 20:36:40 GMT

K-Dub wrote:
The only official score I have is TU which is 660, I get this score through WAMU. FYI, I have not paid anything yet, waiting to hear back from the mortgage broker...which is CTX Mortgage.

The WAMU score is PFICO, a credit-card enhanced FICO TU score. Do you have access to additional monies?

Re: I have 10k to use...What do I pay off?

Anonymous — Tue, 29 Jul 2008 17:07:20 GMT

1) Please do not believe that as long as you are below 89% utilization, then you are okay. I think I know where this myth may come from. Once you go above that 90% utilization threshold, potential creditors looking at your report think you are too close to maxing out your available credit. So, yes, it's good not to be 90% and over, but it doesn't stop there. I've heard a utilization of 50% is optimal. I've heard a utilization of 30% is optimal. I've heard a utilization of 10% is optimal. The FICO scoring does not have a magic utilization number that once you hit, you are golden. The point is, the lower you utilization is, the better. And is it not just the overall utilization that matters, but the utilization of each individual credit account as well. I have seen a 100 point increase in my FICO score by bringing my overall utilization down to 10% (from 30%), and by bringing the utilization of my largest individual accounts down from 82-92% to 0-10% (like you, I was in the same boat of having zero balances on accounts with low credit lines but very high balances on those with high credit lines and I had a score of 660 then). So overall, your utilization is 85%, which already is not good, but on those individual credit accounts that have balances, you utilization is 99%, 95%, 57%, and 79%, respectively, which is worse. Therefore, take AlishaR's advice. It is the closest you will come to lowering those credit accounts to around 50%. And for the Wells Fargo credit accounts that you cannot get below 50% with the $10K - I'd suggest getting some money from somewhere (cutting your spending maybe?) to try to get those credit accounts below 50% as well.

2) Utilization is not judged by how many accounts have balances versus the total number of accounts that you have in total. It is judged by how much credit you are using versus how much total you have been given to use. So this 50% rate of accounts with balances that ilovepizza refers to is misleading. It's the balances that count. You have zero balances on those credit accounts with the lowest credit limits and very high balances on those with the highest credit limits. You would be so much better off it were the other way around - you had zero balances on those with the highest credit limits and high balances on those credit accounts with the lowest credit limits, although, ideally, you want to have low balances on all. See math below:

Current situation:

Wells Fargo LOC - Balance $16,300 - Credit Line $16,500 - Utilization 99%
Wells Fargo - Balance $6,200 - Credit Line $6,500 - Utilization 95%
WAMU CC - Balance $1,700 - Credit Line $3,000 - Utilization 57%
CITI CC - Balance $4,200 - Credit Line $5,300 - Utilization 79%
Compass CC - Balance $0 - Credit Line $600 - Utilization 0%
Household CC - Balance $0 - Credit Line $300 - Utilization 0%
Legacy CC - Balance $0 - Credit Line $350 - Utilization 0%
FNCC CC - Balance $0 - Credit Line $850 - Utilization 0%

Overall utilization: 85%

Reverse situation (if those utilization rates were instead on the accounts with the lower limits and the accounts with the higher limits had zero balances):

Wells Fargo LOC - Balance $0 - Credit Line $16,500 - Utilization 0%
Wells Fargo - Balance $0 - Credit Line $6,500 - Utilization 0%

WAMU CC - Balance $0 - Credit Line $3,000 - Utilization 0%
CITI CC - Balance $0 - Credit Line $5,300 - Utilization 0%
Compass CC - Balance $570 - Credit Line $600 - Utilization 95%
Household CC - Balance $171 - Credit Line $300 - Utilization 57%
Legacy CC - Balance $276.50 - Credit Line $350 - Utilization 79%
FNCC CC - Balance $841.50 - Credit Line $850 - Utilization 99%

Overall utilization: 5.6%

Over course, optimally, you want a low overall utilization on all credit accounts in total and individually, but you can still see how the reverse situation outlined above is better than your current - proving that number of accounts with balances versus the total number of accounts that you have in total is not as important as how much credit you are using versus how much total credit you have been given to use.

3) Yes, it's wonderful to pay off you highest interest rate cards first for personal financial planning and debt management purposes. However, the objective here is low utilization, overall and each credit account individually, so it is better to spread your lump sum $10K out among those credit accounts with balances so that you can get below 50%, overall and individually. Then, after closing on your house, concentrate on paying off higher interest rate debt first.

4) How lenders evaluate how many credit accounts are too much is very judgment. However, I think if you have a certain number of credit accounts and it seems that you cannot handle them (either because you are late on payments or you are close to maxing out or actually have maxed out or the total monthly minimum payments on them jeopardizes your ability to comfortably make a mortgage payment, you know that debt to income ration), then the number of credit accounts may be viewed as too much. But if you can handle the number of credit accounts that you have, if shouldn't be a problem. 8 credit accounts doesn't seem excessive. I have 15 credit account (one a student loan, the others are credit cards and lines of credit) and I still have a FICO score of 776 (Equifax), because despite having so many lines, my utilization is 10%, and I have no missed payments so it shows that I can handle having all those credit accounts.

5) Totally agree with marty56.

6) Re: RobertEG. Great advice overall, but I think in terms of getting the lowest possible mortgage rate, FICO score is the most heavily weighed factor. Having lots of liquid assets make your application look better for approval, but the FICO scores is what's going to get that great low rate.

7) Lenders use FICO, not PFICO. Get your real FICO score. Won't count as an inquiry but you'll have to pay for it.

8) Recently saw my score drop from 776 to 773 because the utilization on the only credit card I am currently carrying a balance on went from 43% to 64%, even though overall utilization only went from 9% to 10%. Lesson: utilization on individual accounts count as well, even if they are below the 90% danger zone. Then I saw my score go from 773 to 776 because I used a card that I hadn't used in over a year to purchase something, even though I promptly paid it off before the statement was even generated. Lesson: Even if you want to maintain zero balances, you need to use those zero balance account periodically (which you can then promptly pay off) in order to boost your score even more.

8) What exactly are you waiting to hear back from your mortgage broker about?

Re: I have 10k to use...What do I pay off?

Anonymous — Sun, 03 Aug 2008 19:45:49 GMT

8) What exactly are you waiting to hear back from your mortgage broker about?

She said she is going to send my info to the lender so they can advise what I should do with the 15k that I should have. Is this normal? What will the lender recommend I do?

Here is my current FICO scores as of 3 days ago:

EFX = 653
XPN = 640
TUC = 657

Here are my updated balances on this credit report:
Wells Fargo LOC - Balance $16,333 - Credit Line $16,500
Wells Fargo - Balance $6,312 - Credit Line $6,500
WAMU CC - Balance $1,809 - Credit Line $3,000
CITI CC - Balance $4,566 - Credit Line $5,300
Compass CC - Balance $0 - Credit Line $600
Household CC - Balance $191 - Credit Line $300
Legacy CC - Balance $31 - Credit Line $350
FNCC CC - Balance $0 - Credit Line $850
CITI Personal Loan - Balance $7149 - Payments are $214/Month
Student Loan - Balance $7280 - Payments are $79/Month

With this being said what would you do with 15K cash which is what I will have available to pay down these debts before I close on October 10th??

Thanks again!

Re: I have 10k to use...What do I pay off?

Anonymous — Sun, 03 Aug 2008 20:51:43 GMT

How much would a lender require you to pay off? All I can say is that I bought a house in 2004. I had just sold my previous house and had over $105k in the bank. I was putting 20% down on the new house, $70k. What did Wells Fargo require me pay off in order to get a mortgage? My credit cards. I don't remember what my credit score was then but it is now in the mid-700s and nothing has really changed in the last 4 years, NEVER a late but one paid charge off on a co-signed auto loan (my daughter's). The only other debt I had was my car payment of $330 per month.

I have 6 credit cards, likely about the same then, with a total credit limit of $75k. They required me to pay off my balances, $13k. It still pisses me off about that when I heard people in the sales office getting 100%, even 105% financing with fees rolled into the mortgage and they required this of me?

I earn $90k per year plus bonus, it was probably $80k then. If you are going with Wells Fargo with that type of debt then you'd better have some major income to off-set it.

Re: I have 10k to use...What do I pay off?

Anonymous — Mon, 04 Aug 2008 19:46:20 GMT

You have ~43k in debt, that you posted about, there might be more, aka a car, and you want to buy a house??????

I don't see why you are interested in getting a better rate when you could save ten times the amount by getting out of debt. You could always refi your house later in life, make extra payments and knock 8 years off the loan.

My advice, which is not fueled by credit scores would be this:

Don't buy the house now, wait!

Pay off these and close them with your 15k:
Compass CC - Balance $0 - Credit Line $600
Household CC - Balance $191 - Credit Line $300
Legacy CC - Balance $31 - Credit Line $350
FNCC CC - Balance $0 - Credit Line $850
CITI Personal Loan - Balance $7149 - Payments are $214/Month
Student Loan - Balance $7280 - Payments are $79/Month

Then in this order:
WAMU CC - Balance $1,809 - Credit Line $3,000
Wells Fargo - Balance $6,312 - Credit Line $6,500
Wells Fargo LOC - Balance $16,333 - Credit Line $16,500

It's doubtful you'll even get the loan, with the type and amount of debt you have, you are risky to a lender, even FHA which you probably don't qualify for. You have a debt problem, not a credit score problem. Of course your loan to value and debt to income ratio come into play, we don't know what you make, but one would assume if you made great money, you wouldn't have 43k in debt.

Re: I have 10k to use...What do I pay off?

fused — Mon, 04 Aug 2008 20:16:48 GMT

barbarino wrote:
You have ~43k in debt, that you posted about, there might be more, aka a car, and you want to buy a house??????

I don't see why you are interested in getting a better rate when you could save ten times the amount by getting out of debt. You could always refi your house later in life, make extra payments and knock 8 years off the loan.

My advice, which is not fueled by credit scores would be this:

Don't buy the house now, wait!

Pay off these and close them with your 15k:
Compass CC - Balance $0 - Credit Line $600
Household CC - Balance $191 - Credit Line $300
Legacy CC - Balance $31 - Credit Line $350
FNCC CC - Balance $0 - Credit Line $850
CITI Personal Loan - Balance $7149 - Payments are $214/Month
Student Loan - Balance $7280 - Payments are $79/Month

Then in this order:
WAMU CC - Balance $1,809 - Credit Line $3,000
Wells Fargo - Balance $6,312 - Credit Line $6,500
Wells Fargo LOC - Balance $16,333 - Credit Line $16,500

It's doubtful you'll even get the loan, with the type and amount of debt you have, you are risky to a lender, even FHA which you probably don't qualify for. You have a debt problem, not a credit score problem. Of course your loan to value and debt to income ratio come into play, we don't know what you make, but one would assume if you made great money, you wouldn't have 43k in debt.

The OP's question was about improving their credit scores, not saving money, so any advice should be credit score fueled. While I agree with you that saving money is more important, your advice doesn't offer anything to improve credit scores; in fact your advice can't even help with saving money since we're unaware of the OP's APRs.

Message Edited by fused on 08-04-2008 10:16 AM

Re: I have 10k to use...What do I pay off?

Anonymous — Tue, 05 Aug 2008 06:45:51 GMT

""You have ~43k in debt, that you posted about, there might be more, aka a car, and you want to buy a house??????

I don't see why you are interested in getting a better rate when you could save ten times the amount by getting out of debt. You could always refi your house later in life, make extra payments and knock 8 years off the loan.

It's doubtful you'll even get the loan, with the type and amount of debt you have, you are risky to a lender, even FHA which you probably don't qualify for. You have a debt problem, not a credit score problem. Of course your loan to value and debt to income ratio come into play, we don't know what you make, but one would assume if you made great money, you wouldn't have 43k in debt.""

I appreciate your honesty and opinion, but my original question was not how to get out of debt. I know how to get out of debt, and guess what...renting is not the answer!!!

I am a first time home buyer, have no car loans, or anything else than listed above. I could save ten times this amount by renting and living the American dream?? BS! I've already been approved for the loan, I now make over 120K which I didn't make prior. If I would have made 120K over the past 2-5 years no I would not be 43k in debt. I honestly believe 43k is not that much debt when you figure I am raising a family of 6. Thanks for the post but I'd like to get back to the original question.

Re: I have 10k to use...What do I pay off?

Anonymous — Tue, 05 Aug 2008 18:56:48 GMT

Pay off your debt, you'll get your better rate which is the question you asked.