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Able to be debt free but what should I keep to increase my scores?

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Able to be debt free but what should I keep to increase my scores?

My husband and I recently lost our home and everything in the CA Camp Fire. I just paid off our credit cards and am going to continue to pay the ones we use for everyday purchases and when we have to replace stuff several times a month. I want to keep using them for the cash back and because I have learned that some revolving credit is good as long as it reports under 9% utiliztion I think? Please correct me if I am wrong. I used to think that just paying off the balance in full each month was good and had no idea! I am hoping that our scores will increase as fast as they have dropped as we needed to use the cards to buy necessities and continually replace items, sending us into a bad utilization of over 50% for one and over 30% for another while waiting for our insurance check that was mailed to the wrong address.

 

Our mortgage is also in the process of being paid off. We will get with a financial advisor (would love reccomendations of any companies that anyone has used as this is all new to us). From what I have read I want to verify that we should keep the loan for our car? We will not be buying a new house for probably at least 6 months as we are moving out of state and even then depending on what a financial advisor says, it seems that we should not buy the house in full as it seems that the variety of loans and credit look good in factoring a score?

 

I am just so worried that credit scores drop fast due to utilization but once paid in full it seems that they take a lot longer to bounce back. I would appreciate any wisdom. Thank you in advance! Smiley Happy

 

 

9 REPLIES 9
Super Contributor

Re: Able to be debt free but what should I keep to increase my scores?

Despite what people may say, you don't have to maintain AZEO ( All Zero Except One at 8.9% or less). That's just a way to maximize your score. You'll be fine paying in full. If you have a planned app coming up, switch to AZEO a couple of months before. If it's for a new home loan, at least 6 months. There's an argument for always keeping your credit at it's peak for unexpected surprises, but I don't think the micromanagement is worth the extra 10 points. 








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Message 2 of 10
Established Member

Re: Able to be debt free but what should I keep to increase my scores?

I always thought I was fine paying in full each month until my credit score and my husband's dropped about 50 points because the utilization was high. We just use them for everything. So that kind of worries me. The ONLY reason both of our scores continue to drop major drops (30-50 pts at a time) is the high utilization.

Message 3 of 10
Super Contributor

Re: Able to be debt free but what should I keep to increase my scores?


@BaconCakes wrote:

I always thought I was fine paying in full each month until my credit score and my husband's dropped about 50 points because the utilization was high. We just use them for everything. So that kind of worries me. The ONLY reason both of our scores continue to drop major drops (30-50 pts at a time) is the high utilization.


You just need to change when you pay and when you use the card. For example, my qs1 is due on the 9th. The statement cuts on the 12th. If I want it to report a Zero balance, I make sure the payment clears no later than the 11th. On the 12th, cap1 will report the zero balance and I start using the card again. In my case, I pay my cards at least 2 weeks in advance so my qs1 is showing a zero balance on Jan 26th. I then don't use the card until Feb 13th to make sure it reports zero.








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Message 4 of 10
Super Contributor

Re: Able to be debt free but what should I keep to increase my scores?

Brian is right.  Top priority for you is to learn how to spend a lot on your cards while controlling how much they report to the three bureaus, which in turn will control your CC utilization, since CC util is about what is reported to the bureaus.

 

A person with three cards with a $1000 credit limit each could spend $10,000 a month on his cards and still have a utilization of 1-4%.  If you don't understand how that could be done, ask Brian to walk you through it in more detail.

 

Note that you can also spend very little on your cards and build your score just as fast.  I am just saying that you need to learn how to spend a lot if you wanted to and still have a low utilization.  If a person doesn't know how to do that it means there are fundemental things about credit reporting that he doesn't yet understand.

 

As far as your two loans, I advise you to slow down on your plan to pay off the mortgage.  That may not be the best plan.  The two considerations for paying down (or paying off) loans are:

        (a) What is best for me financially?

        (b) What is best for my score?

 

You can often find a nice solution for both in a loan where the lender responds to big extra payments by pushing the "due date" for the next payment way into the future.  If you have already made extra payments (by a large amount) to the mortgage, a top priority should be you guys looking to see when the next payment is due.  A perfect situation would be to pay off most of the mortgage with the due date for the next payment being extended way into the future -- then keep the mortgage open for many years (at very little interest).  If that could work out, you'd want to pay off the auto loan completely.  (Paying off the auto loan would likely enable you to choose a much lower insurance package if you wished to.)

Message 5 of 10
Established Member

Re: Able to be debt free but what should I keep to increase my scores?

Thank you both for your help. Unfortunately we have to pay off the home loan in it’s entirety to get the remaining part of the insurance check mailed back to us. They put our names and the mortgage company on it to ensure that the mortgage company gets paid in full. We have no choice. That’s why I was thinking of keeping our auto loan open until we get a new home loan, whenever that may be.
Message 6 of 10
Super Contributor

Re: Able to be debt free but what should I keep to increase my scores?

Two questions:

 

(1)  If you were to not make any additional payments on the car loan, when would that loan be paid off?

 

(2)  Do you have any relatives in the military?

 

The answers will help answer the question of whether to try to keep the auto loan open.

Message 7 of 10
Established Member

Re: Able to be debt free but what should I keep to increase my scores?

The car loan has about 2 years left on it.

 

I do not have any family in the military.

Message 8 of 10
Super Contributor

Re: Able to be debt free but what should I keep to increase my scores?

In theory you could pay off both loans and then, to simulate the scoring boost you get from an open loan that is mostly but not entirely paid off, you could implement something called the Share Secured Loan Technique, which is to open a personal loan and pay off most of it, but then keep it open for the full 60 months.

 

Navy Fed is the best choice right now for SSLT-compliant lenders.  In fact it is the only lender we know of that works perfectly.  To become a member of Navy, however, you need to have family in the armed forces.

 

My recomendation is to keep paying off your loans however you like.  Try to keep the auto loan open for the full term.  While you are doing that, we'll probably find other lenders who are good for the SSLT.

Message 9 of 10
Super Contributor

Re: Able to be debt free but what should I keep to increase my scores?


@BaconCakes wrote:

My husband and I recently lost our home and everything in the CA Camp Fire. I just paid off our credit cards and am going to continue to pay the ones we use for everyday purchases and when we have to replace stuff several times a month. I want to keep using them for the cash back and because I have learned that some revolving credit is good as long as it reports under 9% utiliztion I think? Please correct me if I am wrong. I used to think that just paying off the balance in full each month was good and had no idea! I am hoping that our scores will increase as fast as they have dropped as we needed to use the cards to buy necessities and continually replace items, sending us into a bad utilization of over 50% for one and over 30% for another while waiting for our insurance check that was mailed to the wrong address.

 

Our mortgage is also in the process of being paid off. We will get with a financial advisor (would love reccomendations of any companies that anyone has used as this is all new to us). From what I have read I want to verify that we should keep the loan for our car? We will not be buying a new house for probably at least 6 months as we are moving out of state and even then depending on what a financial advisor says, it seems that we should not buy the house in full as it seems that the variety of loans and credit look good in factoring a score?

 

I am just so worried that credit scores drop fast due to utilization but once paid in full it seems that they take a lot longer to bounce back. I would appreciate any wisdom. Thank you in advance! Smiley Happy

 

 


1. If I were you I would do what feels right financially, and stop worrying about which combination gets you the highest FICO score. Neither FICO nor any other part of the banking industry has your best interests at heart; their interest is in getting you to owe money.

 

2. You were right that paying off the balance in full is the best possible thing for your scores.

 

3.  If you want to use your credit cards to optimize your FICO scores, have all but one of them report a zero balance when the statement cuts, and let one report a small balance when the statement cuts and then pay that off right away.  I.e., pay most of the balances before the statement is issued, and pay one right after the statement is issued.

 

4. From a FICO standpoint it's best to pay your car loan down to 9% or less but not zero. But I didn't and wouldn't do that with my car loan. I would rather pay it off and have the peace of a mind of a clear title.

 

5. Don't let a financial advisor advise you that you should have a mortgage when you don't need one. That's bunk. If you can own your home free and clear more power to you.  From a pure FICO scoring perspective, though, you should take out a small mortgage and then pay it down to 9% or less but not zero.


Total revolving limits 720500 (594000 reporting) 10/2/19 FICO 8 scores: EQ 744 TU 782 EX 746
Message 10 of 10
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