Which to payoff first?

[Anonymous]

I am applying for a mortgage within the next 6 months. I recently pulled my Equifax and it was a 630. My wife is a 650. We do have a couple of 30 day lates from about 5 years ago, but our main issue is the total balance we carry (15 CCs with total balance of $53K) relative to our credit limit (about $73K) Some cards have just a few hundred bucks on them, others are approaching $10K and anywhere in between. About 70% of my balance carries interest rates between 3.9% and 9.9% for life, so I'm in no hurry to pay these off. Other than these large balances and the 2 30 day lates from years ago, we have a clean CR.

I want to increase my score as quickly as possible with our home purchase around the corner. As I see it, we have three options: 1. work on paying off the cards with the smallest balances first (which also happen to have higher rates between 15% and 22%) so we'll have accounts with zero balances (we can probably payoff 5 of the 15 cards right now); OR 2. work on paying down the card with the highest balance, which also carries the highest interest rate and therefore the largest minimum payment relative to the balance (the min pmt is about 3.5% of the outstanding balance--$4000 toward this balance will lower our total minimum monthly payment most efficiently for when it comes to determining how much of a mortgage we'll qualify for); OR 3. spread the money we have available across the cards with balances in excess of 80% of their respective credit limits.

My initial thought was #3, get everything under 80%, but we've made 2 significant payments to Amex and they have reduced our CL each time because we have other high utilization numbers elsewhere, according to the customer service rep I spoke with.

As a result of the Amex action, I contacted BOA (spoke with someone in credit instead of customer service) to see if they would do the same thing. Their response was basically "Keep making payments significantly larger than the minimum due and call us back in a few months and we may be able to lower your rate." They assured me that they would not drop my credit limit like Amex did. BOA is the card I have with the largest balance and also the highest rate. (see #2 above) The rate is higher because I made 2 late payments (both were one day late, believe it or not--that will never happen again) within the last year.

So I am inclined to do #1 or #2 above. Again, I would do #3 but Amex would not assure me that they would not continue lowering my credit limit. If that's the case, my balance will go down, which is fine, but my utilization with them will always be almost 100%, which won't help my FICO. I suppose my question is which has a better effect on my FICO, having all cards individuallly under 80% or having total utilization under 80% (some maybe are 90% while others are at 70%)?

Also, we've lowered our overall utilization from 84% to about 73% since I pulled our CRs last month, so our scores will likely be a little higher now.

One more thing... Is there a single service that I can subscribe to where I can pull all 3 CRs at anytime for a monthly charge? Sorry for being so long winded and thanks in advance for any suggestions you can offer.

Message Edited by waiting4sevenhundred on 02-18-2008 01:35 PM

[haulingthescoreup]

Hi, waiting, welcome to the forums!

Are you on Firefox? If so, you are the latest victim of the Giant Firefox Paragraph Blob. If you will click on "Options" at the top right of your post and select "edit", you can re-insert the paragraphs.

Once the text box re-opens, go down to the bottom left of the text box and click where it says "Automatically convert carriage returns to HTML line breaks." This is what preserves paragraphs. Then go back and re-insert your paragraphs. It will probably show < div > or < br > (without the spaces) where they used to be.

If you can't figure out how to do this, please let one of us mods know, and we'll do it for you. Right now your post is kind of indigestible.

[Anonymous]

Thanks. Yes I am on Firefox and now it's much cleaner. You guys are great! Keep up the good work!

[MidnightVoice]

Getting your utilization down as evenly as possible will help, but I am not sure what a mortgage lender would think of $53K of debt in terms of DTI.

[Anonymous]

Well it seems you are well aware that the UTL on your cards is killing your score-

Are you really ready for a new mortgage? This IMO is a huge debt load and a plan to get it paid off is in order-

Put the Cards, Balances, CL's, APR and UTL in a Spreadsheet-

IF you can get 1/2 of open accounts with a balance- 15 to 20 points even with the high UTL

Getting cards under 50% of limit big plus

Getting overall UTL under 50% big plus , under 30% even better

You may just want to pay down the highest APR's first and see from there- 

You are easily in the 700's with a payoff of the revolving debt-

[Anonymous]

Regarding DTI, our current bills plus our proposed mortgage brings our DTI in under 40%, which isn't too bad in the eyes of many lenders. We want to increase our FICO which will lead to a lower mortgage rate, which will bring our DTI even lower.

Our income is sufficient to cover our debt, we're just trying to figure out how our discretionary dollars are best allocated so that we can maximize the increase in our score.

Let's say I have $11K available right now to put toward paying down debt. I can either payoff enough cards to have 1/2 with balances and 1/2 without balances, which means a bump of 20 points, but I still have several cards above 80%. Alternatively, I can spread it across all balances to get them to 65% (assuming Amex doesn't screw me again), but I still have many accounts with balances.

In both cases my total UTL drops to just under 59%.

Which of these two would help my score the most?

One more option, which is sort of a happy medium. I can payoff 4 balances and still have $9500 to spread across the remaining balances, which would allow me to have no cards with UTL in excess of 68% and 11 accounts with balances and 5 with no balances.

I know it's a secret formula and nobody can tell me the absolute best mix, but I'm hoping someone out there has experienced similar issues and can tell me how their mix worked.

Thanks again.

[Anonymous]

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waiting4sevenhundred wrote:
I am applying for a mortgage within the next 6 months. I recently pulled my Equifax and it was a 630. My wife is a 650. We do have a couple of 30 day lates from about 5 years ago, but our main issue is the total balance we carry (15 CCs with total balance of $53K) relative to our credit limit (about $73K) Some cards have just a few hundred bucks on them, others are approaching $10K and anywhere in between. About 70% of my balance carries interest rates between 3.9% and 9.9% for life, so I'm in no hurry to pay these off. Other than these large balances and the 2 30 day lates from years ago, we have a clean CR.

I want to increase my score as quickly as possible with our home purchase around the corner. As I see it, we have three options: 1. work on paying off the cards with the smallest balances first (which also happen to have higher rates between 15% and 22%) so we'll have accounts with zero balances (we can probably payoff 5 of the 15 cards right now); OR 2. work on paying down the card with the highest balance, which also carries the highest interest rate and therefore the largest minimum payment relative to the balance (the min pmt is about 3.5% of the outstanding balance--$4000 toward this balance will lower our total minimum monthly payment most efficiently for when it comes to determining how much of a mortgage we'll qualify for); OR 3. spread the money we have available across the cards with balances in excess of 80% of their respective credit limits.

My initial thought was #3, get everything under 80%, but we've made 2 significant payments to Amex and they have reduced our CL each time because we have other high utilization numbers elsewhere, according to the customer service rep I spoke with.

As a result of the Amex action, I contacted BOA (spoke with someone in credit instead of customer service) to see if they would do the same thing. Their response was basically "Keep making payments significantly larger than the minimum due and call us back in a few months and we may be able to lower your rate." They assured me that they would not drop my credit limit like Amex did. BOA is the card I have with the largest balance and also the highest rate. (see #2 above) The rate is higher because I made 2 late payments (both were one day late, believe it or not--that will never happen again) within the last year.

So I am inclined to do #1 or #2 above. Again, I would do #3 but Amex would not assure me that they would not continue lowering my credit limit. If that's the case, my balance will go down, which is fine, but my utilization with them will always be almost 100%, which won't help my FICO. I suppose my question is which has a better effect on my FICO, having all cards individuallly under 80% or having total utilization under 80% (some maybe are 90% while others are at 70%)?

Also, we've lowered our overall utilization from 84% to about 73% since I pulled our CRs last month, so our scores will likely be a little higher now.

One more thing... Is there a single service that I can subscribe to where I can pull all 3 CRs at anytime for a monthly charge? Sorry for being so long winded and thanks in advance for any suggestions you can offer.

Message Edited by waiting4sevenhundred on 02-18-2008 01:35 PM

---

Everyone is forgiving except for AMEX pay them their money first.

[Anonymous]

I would love nothing more than to pay Amex and be done with them. Unfortunately, that doesn't fit into any of my options. I am trying to lower my UTL, and as long as they keep cutting my CL, although they will be paid off and my total dollars owed goes down, my total UTL will not be affected nearly as much as if I pay off others who will not cut my CL.

They kind of have me by my shorts and there's nothing I can do about it that's in my best interest. Oh well, I'll just go on giving them their 14% and pay someone else who won't screw me over every time I send them 800 bucks.

[haulingthescoreup]

waiting, I see your dilemma about distributing the payments. I would say that the first priority is to get everything under 85%. After that, I genuinely don't know what's best: half at zero, the rest down equally; half at zero, some at 50%, the rest wherever they fall; some at zero, the rest under 50%, or what.

One option for scoring purposes is to get a personal loan for as high as they'll give you and shove as much CC debt onto it as you can. The debt is still there, but the APR is probably lower, and installment util is calculated separately from revolving, and has less impact on your scores. If you do that, I would say PIF all but two cards and have then report under 10%. Then throw everything you have at paying down the loan. Keep using the cards and promptly paying them off, so that they don't close your cards down. It might be safer to do this in stages over 2 or 3 months, because some credit card companies will close your cards if you do this all at once.

[Anonymous]

I forgot to mention that I do have an ace in the hole. I own some vacant land in North Carolina where we are going to build our home. The land is worth about $50K. I considered taking out a loan secured by the land to payoff our debt, but we're using the land as a down payment on the home to avoid PMI. Otherwise we'd have to come out of pocket for a down payment and we don't want to do that.

My ultimate plan is to buy the house using the 7 acres as our down payment. Shortly after we close, we will take out a second mortgage for hopefully enough to payoff everything that's leftover after paying down what we can between now and then.

So your advice to take out a loan to payoff the cards is already in the works, we just need to have the house built first.

Has anyone else utilized this strategy? If so, I'd love to hear how it worked out. I know this is getting a little off topic with second mortgages, but I'd like to continue this discussion in this forum since it does ultimately relate to credit cards and retiring their balances.

I'm a newbie and I want to thank everyone who has given me and all other newbies advice. I have already learned a lot from reading posts in these forums. Again, keep up the great work. It is truly appreciated!