Help Needed - How should I pay off debt for credit score increase?

[Anonymous]

Hi All,

I'm looking to pay off some of my credit card debt in hopes of boosting my FICO scores asap. My wife and I are hoping to refinance our mortgage and purchase a car in the next 6-18 months. I've got a bit of cash to throw at some of my debt and I'm wondering which is the most effective way to pay the cards down in regard to boosting my score? Here are my cards and balances:

Card - Balance - Limit - Util.

Discover - $684.71 - $2,900.00 - 23.61%

Chase - $0.00 - $1,500.00 - 0.00%

Wells Fargo - $4,880.00 - $5,500.00 - 88.73%

Capital 1 #1 - $2,444.87 - $3,500.00 - 69.85%

Capital 1 #2 - $770.31 - $1,150.00 - 66.98%

Citi - $0.00 - $3,000.00 - 0.00%

Overall - $8,779.89 - $17,550.00 - 50.03%

I have about $1500 to throw at the cards today and then anywhere from $500-1200 a month going forward. If I'm trying to get the biggest score jump possible with this first payment ($1500) which cards should I pay down first and down to how much? Then, what should be my approach going forward?

Thanks for you advice!

[Gollum]

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@Anonymous wrote:

Hi All,

I'm looking to pay off some of my credit card debt in hopes of boosting my FICO scores asap. My wife and I are hoping to refinance our mortgage and purchase a car in the next 6-18 months. I've got a bit of cash to throw at some of my debt and I'm wondering which is the most effective way to pay the cards down in regard to boosting my score? Here are my cards and balances:

Card - Balance - Limit - Util.

Discover - $684.71 - $2,900.00 - 23.61%

Chase - $0.00 - $1,500.00 - 0.00%

Wells Fargo - $4,880.00 - $5,500.00 - 88.73%

Capital 1 #1 - $2,444.87 - $3,500.00 - 69.85%

Capital 1 #2 - $770.31 - $1,150.00 - 66.98%

Citi - $0.00 - $3,000.00 - 0.00%

Overall - $8,779.89 - $17,550.00 - 50.03%

I have about $1500 to throw at the cards today and then anywhere from $500-1200 a month going forward. If I'm trying to get the biggest score jump possible with this first payment ($1500) which cards should I pay down first and down to how much? Then, what should be my approach going forward?

Thanks for you advice!

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IMHO, $1500 won't make an appreciable difference in your FICO scores right away, but don't get discouraged... keep plugging away at paying off your debt.

Paying off the highest-interest-rate debts first is best, arithmetically speaking, but some people (like Dave Ramsey) say that paying off the smallest debts first gives the debtor psychological reward/incentive.

[Anonymous]

Pay the highest interest debt first. It's costing you the most in the long run. 

I would ax the Cap 1 #2 just for a mental boost.

Additionally, as you get things paid down, start to request CLI's. This will help offset the use ratio and will have no negative effect on your future plans.

*also consider buying a used car. I dont know what your current plans are, so no judgment on my part. I've had plenty of friends ax debt only to immediately go buy a $60k car because they were approved for the loan. 

[Remedios]

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@Anonymous wrote:

Hi All,

I'm looking to pay off some of my credit card debt in hopes of boosting my FICO scores asap. My wife and I are hoping to refinance our mortgage and purchase a car in the next 6-18 months. I've got a bit of cash to throw at some of my debt and I'm wondering which is the most effective way to pay the cards down in regard to boosting my score? Here are my cards and balances:

Card - Balance - Limit - Util.

Discover - $684.71 - $2,900.00 - 23.61%

Chase - $0.00 - $1,500.00 - 0.00%

Wells Fargo - $4,880.00 - $5,500.00 - 88.73%

Capital 1 #1 - $2,444.87 - $3,500.00 - 69.85%

Capital 1 #2 - $770.31 - $1,150.00 - 66.98%

Citi - $0.00 - $3,000.00 - 0.00%

Overall - $8,779.89 - $17,550.00 - 50.03%

I have about $1500 to throw at the cards today and then anywhere from $500-1200 a month going forward. If I'm trying to get the biggest score jump possible with this first payment ($1500) which cards should I pay down first and down to how much? Then, what should be my approach going forward?

Thanks for you advice!

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Hi and welcome! 

If you are looking purely from scoring gain point of view, you want to bring those cards down below certain threshold. In your case, that would be below 68.9% 48.9% then 28.9% and if possible below 8.9% right before application.Ideally, you'd only have one card with balance less than 8.9% at the time you're ready to refinance.   

A single payment of $1500 will not make that much  difference in the first month because you will still have other cards with "scoring penalty" and your aggregate utilization will still be above second ideal ideal threshold at 28.9% 

In any case, I'd start with WF card as that one is maxed out by scoring standards. 

If you are looking to save money while improving your scores (you have plenty of time), I'd pay off cards with highest interest  first.  Snowball method also works for many. 

[Anonymous]

Thanks for the quick and helpful responses so far!

Would there be a scoring difference if I paid off the two smaller balances (Discover and Cap1 #2) vs putting all $1500 toward the WellsFargo? Of those two options, which would impact my score most (if at all)?

Thanks again!

[Remedios]

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@Anonymous wrote:

Thanks for the quick and helpful responses so far!

Would there be a scoring difference if I paid off the two smaller balances (Discover and Cap1 #2) vs putting all $1500 toward the WellsFargo? Of those two options, which would impact my score most (if at all)?

Thanks again!

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Scoring wise, maxed out card has by far worse impact than number of cards reporting balance, especially when balance is not high. 

You could pay off smaller ones, put rest in WF this month, then continue hammering on WF but dont expect to see much of a gain for paying smaller ones. 

It's the WF and the other two that are impacting your score the most. 

If seeing zeros on those two cards would provide some positive reinforcement for you, start there. 

Maybe if  @Anonymous is around later, we'll get lucky and he'll have time to offer some suggestions. 

[Anonymous]

I disagree that the OP's $1500 paydown won't result in a nice score increase.  The most important thing here is aggregate utilization, which is King to individual card utilization.  OP is at just over 50% aggregate and a $1500 paydown will bring him down to 41% or so aggregate, crossing the 48.9% threshold.  This will be good easily for 10-15 FICO 8 points.

Since we're talking aggregate, it really doesn't matter where the $1500 goes.  The second factor to consider, though, is his highest individual utilization card.  By throwing $1100 toward that card, he'll cross the 68.9% threshold which could be good for (say) another 5 points.  The remaining $400 could go anywhere and it wouldn't matter from a scoring perspective although enough should go to the Cap One cards to keep them both below the 68.9% threshold, even after interest is added.

So, my vote is $1100 toward that highest individual utilization card, then the other $400 anywhere else (highest interest makes the most sense) and you'll realize a 15-20 point score gain, based largely on crossing a well known aggregate utilization threshold.

[Anonymous]

Yeah, you're pretty close there with WF, so that should be your first priority before they decide to take action. IMO you're going to need most of that 18 months to rebound. At $725 you could pay it off in 12 months, giving you some extra cash in the bank come refi time in 18 months.

After about 6 months of paying down balances, I would totally pay off Discover and Cap1 #2. Then continue on with WF and Cap1.

I would also suggest that once all the high balance cards are paid down to under 48%, try hitting up Discover for a CLI. If successfull, that will help some with utilization until the rest is paid down. 

[Remedios]

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@Anonymous wrote:

I disagree that the OP's $1500 paydown won't result in a nice score increase.  The most important thing here is aggregate utilization, which is King to individual card utilization.  OP is at just over 50% aggregate and a $1500 paydown will bring him down to 41% or so aggregate, crossing the 48.9% threshold.  This will be good easily for 10-15 FICO 8 points.

Since we're talking aggregate, it really doesn't matter where the $1500 goes.  The second factor to consider, though, is his highest individual utilization card.  By throwing $1100 toward that card, he'll cross the 68.9% threshold which could be good for (say) another 5 points.  The remaining $400 could go anywhere and it wouldn't matter from a scoring perspective.

So, my vote is $1100 toward that highest individual utilization card, then the other $400 anywhere else (highest interest makes the most sense) and you'll realize a 15-20 point score gain, based largely on crossing a well known aggregate utilization threshold.

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So, we're basically in agreement, minus how many points part? 

Also, there is at least a couple of hundred in interest to account for  unless those cards are in 0% promo, which I doubt. 

@Anonymous   Would you mind providing your current scores if you have access to them and also, is there any negative info on your CR as that may  impact scoring, too. 

[Anonymous]

Sure!

As of 4/29 my Fico 8 scores are:

EQ 657

TU 661

EX 656

The only negative I have is a 30 day late from March 2017. I had just opened my cap1 card and SWORE it was on auto pay. Unfortunately it wasn't and I missed that first payment . I've paid that card, and every other card, on time.

I also removed myself as an authorized user from 3 of my mother's cards yesterday. They were high balance cards (17000/19000 - 8000/10000, and 2100/3000) so I'm hoping that should boost my score.