Best Strategy for scoring?

[Anonymous]

So I have a bit of a dilemma, and have been racking my brain on what/how to do it.  I have several 0% BT promos running, as I had a recent medical expense I had to come up with cash for. I also took out a $15K personal loan @ 9.99%, and have paid down to $7K within the first 8 months. I have about $10K+ in CC balances/debt that run me about $1250 per month to have them paid before the promo ends. My Loan is $484 per month, combined cost is $1734. That's not counting other normal expenses, ie rent, car, bills etc.

I have $5K sitting in Discover savings and have thought about just paying off the CCs so that I'm only paying out for the Loan, but the CCs are 0%. Where as if i paid the loan, I'd only be saving $484 per month plus about $700 in interest. However, paying the loan would improve my DTI as it wouldn't show that $484 anymore. Only the minimums on CC that I have balances on, even though I pay significantly more.

Of those only Discover $4K, Citi $2K and Amex $1K report to personal credit. The other $5K are on Biz cards.

I've been contemplating which route would be better financial wise versus score wise. Before this expense I had been looking into getting a Mortgage to remodel my House. I do not want to go into this with both factors reporting, as it might appear that i'm in too deep. And maybe I am. Just curious how the Bank might perceive it? Not having the $484 going out every month, or not having $6-8K in CC balances?

[coreysw12]

Revolving debt utilization is weighted heavier than installment loan utilization. That is, someone who owe's 50% of their installment loan is generally seen as less risky than someone who is using 50% of their available credit card limits. So for maximum score increase, you should pay down your revolving balances first.

That runs counter to the best move to make financially, which is to pay off the highest interest debts first, which is your installment.

That said, the interest you are paying on your installment loan could very well be worth continuing to pay, if you can pay down the revolving balances and get yourself a better mortgage rate.

Mortgage interest rate always trumps other debt's interest rates, in my opinion. If you keep paying your minimum payments on your installment loan, you'll spend a few hundred dollars in interest; but if you get a mortgage soon and end up with an APR that's 0.25% higher because your scores fell just short of the the next tier up, that could cost you 10's of thousands of dollars in the long run.

[Revelate]

Depending how much longer the 0% promos are for, really is the determining factor for best move financially.  If you blow your cash and they come out before you can repay them you might wind up losing even more money.

Agreed with Corey that scoring wise installment loans are a blip, revolving utilization is what needs to be optimized.

[Anonymous]

My utilization is pretty low though, under 9% on each card that has a balance and under 10% overall ATM. That number will go down in the next two months. If that makes any difference.

[Brian_Earl_Spilner]

A light dinner, alcohol, and some Jodeci usually gets the job done.

[sarge12]

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@Anonymous wrote:

My utilization is pretty low though, under 9% on each card that has a balance and under 10% overall ATM. That number will go down in the next two months. If that makes any difference.

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Credit card utilization is a bit of an enigma of sorts, as it can be considered both one of the least important factors on a score, and also one of the most important factors. That is because it can cause a lot of points on your score if utilization is high which makes it one of the most important thing you can control. The fact that it carries no penalty due to the history of the metric, makes it less important to future credit scores, because you can recover every single point you lost due to high utilization by simply getting the utilization back below 9%. Other factors in a credit score, such as late payments or other negative factors will still have major effects on a score, even after being paid off. It will still harm your score for years. A person can lose many points due to utilization, and regain all the lost points right before a major credit application. So it is only really important to have low utilization before a credit application is filled out. It is one of the only factors in the credit score that can be 100% cured at any time.

[DollyLama]

Since your CC utilization will be under 8.9%, in your calculations, I would look at your front end overall utilization now and back end if you are anticipating a mortgage, does the income satisfy plus some?  Scores are a factor in qualifications and rates.  Do you know your mortgage scores from each bureau? Are they on the cusp of say a middle mortgage (not FICO 8) score of over 760? 

I will say interest or not, carrying balances across 100% of CC does play a factor in mortgage scores. If 3 are your only CCs, think about reducing it to 2 cards and see if that gets you a bump. However if the money will not afford the amount you are seeking, pay off the cards except for one, keeping it under the 8.9 of it's total credit line.