Pay down CC or save for down payment

[Anonymous]

Hi Gang, I have been an avid reader/lurker for a while. Thanks for all of the helpful posts! This post is mostly concerned with CC utlization, but has a bit of getting a new mortgage as background. I am saving up a down payment for a home to bought (hopefully before Nov 30) this year. The loan would be through the California State Teacher's Retirement System which requires 3% down.

 My issue is that my credit is hovering around 680 with a few baddies and relatively high CC utilization (see below). I think I can afford to spare an additional 1000 on CC, but am nervous about not having enough for closing costs beyond the 3%. If I can raise my score above 700, then I can save half a point (=$2000). 

Do you think it is worth taking the chance now for the cost savings at closing? Here are the details of my CC utilization:

Citi       6550/8900  = 74%

WF        872/5800  = 15%

Disc       410/2000  = 20%

Cap1         0/2000  

Chase       0/500

Chase       0/1500

macy's      0/600

Nordy's     0/1800

Chevron    0/350

GDYR      0/750

Eq=670  Ex=654  TU=677

I just got two baddies removed (30day from Nordy's 4/05 and a PIF collection 3/05). 

I have three baddies left (AmEx collections 1/06, AES 60day 7/07, and HFC 30day 5/07).

I just got the CLI on the Citi and WF in January. I have asked all remaining and have been denied.

 Whew, I guess that's a lot of info. Any and all help is appreciated. 

[Anonymous]

I think that unless there is some factor that cannot be delayed, you should do both....pay cc down and save down payment.

Whatever you are saving toward down, pay some of it toward cc's.  You said it yourself, if you raise your score you get half a point...over the life of the loan that will add up to be a wise investment.

So, you do need enough for your down, with money left over (don't spend the last dime in savings...wait a couple months to put in cushion).  And pay down your utilization to under 35%....more would be better, but 35% is a significant threshhold for FICO bucketing.

Have you paid the collections and past dues?  Not much chance of an AMEX GW, but have you tried to GW your remaining baddies?  Can't hurt, especially if paid off.

Whatever you can't remove, you want to overwhelm with other positives, which is your payments, cc utilization, down payment (with cushion) and baddies at least in a paid condition.  If you can make .5 to .75 points for the effort, you are well paid for doing so.

Don't get impatient and make a move sooner than you should.  Take the time to do it right....cliche but true, "measure twice, cut once."

Message Edited by txjohn on 04-14-2009 10:46 AM

[Anonymous]

Thanks for the reply. I PIF the everything. I tried to GW the 60 day (no luck...they recc'd on the phone that I contest with the credit agenicies!!) and the 30day. I guess they're stuck.

Oh btw - the half point is at closing (i.e. not on rate) and the baddies removed have not yet been calculated into my scores. 

I guess I also wonder if I should BT to some of the other cards or keep them at 0%? And I appreciate the cliche. I wonder how long bfore applying for the home loan I should make cc payments?

Message Edited by chief44444 on 04-14-2009 10:53 AM

[Creditaddict]

I would pay WF and Discover off and then between now and Nov. just throw as much money at the citi as you can while making sure to keep your 3% down payment socked away somewhere. but you should get a score boost by having only 1 account report a balance I would think and those 2 are pretty small in comparison to working on the big citi.

[economan]

SORRY: I am the same person as chief4444, but I just signed up for the service and it made me pick a dif't u/n.

I just pulled my eq=681 (an old collections got removed). I am waiting for nordy's to report the removal as well. Unfortunately, the eq report however did not like my high cc ut. The simulator claims that my range will jump to the 721-761 range if I pay off 80-90% of cc ($6260-7250).

Do you think that I should apply for a new cc? I stupidly applied for macy's and tj maxx last fall (to take advantage of 10% off...doh).  I won't apply for a loan for a mortgage until 9/1. Maybe this is enough time to work back up over 700?

Message Edited by economan on 04-14-2009 10:43 PM

[Anonymous]

If you are working toward mortgage....it would be best to not incur new inquiries or accounts, and to pay the balances down or off.  Don't try to fake utilization with new accounts.  If you can get a CLI with soft pull, that can help....but you want low debt going into the loan process and as the FICO simulator said, paying your debt down is the key to higher score.

You need to be aware that not only does percentage of utilization affect your score, but so does dollar balance amounts.  At $6k plus balances, even if you had a 10% utilization (meaning you had $60k CL) your score would take a hit for that level of dollars due to the "average balance" of the bucket you are in, which high achievers tend to have lower balances which push you down if you carry balances.

Also, mortgages do use and require FICO....but this is only an initial or first tier qualifier. After that, debt to income is a big factor....so morts are sensitive to higher balances.  CC's tend to threaten morts because they represent "potential" debt as well as existing debt.  This is more the case when building credit than once well established.  After you have adequate history, then it won't affect you as much.

Keep your eye on the prize....mortgage.  Don't let teaser rates, deals and shiny cards distract your priorities.

Message Edited by txjohn on 04-15-2009 05:13 AM

[Anonymous]

Thank you txjohn for such a cogent response!

[Anonymous]

Good luck and happy house hunting down the line