Money to be spent - Credit Card Utilizations

[dsdr]

I will be paying a large chunk of money across three credit cards (one of them being my wife who is a stay at home Mom that I naturally pay for).

We are at high utilization on three cards (includes hers) all around 100, 95 & 80 per cent.  If I spread out the money I can get them all down to a bit under 20% utilization (give or take).  Another option, would be to knock out completely two of the three and knock one down to about 80% utilization.  I am not sure best path and hope you all would know.  

What combination is best for the score?  Also, we plan to buy a new vehicle our credit is great except for the credit utilzation (score ~735 but simulator shows it would be extremely high without the debt).  How long does it take to be at a point where the lender will take paying off into account for qualifying for low interest rate (new car)?

Thanks!!!!!

[Anonymous]

For the absolute best score most will say pay off all cards but one and have it report 1%. Ideally you will want to stay under 10% of your total utilization, so if you could get to that point it should help. The other ding is having even one card with a high util. So as for your two scenarios I am not 100% sure, but if you can't get to 10% of total or get the one card that shows a balance under 30% I would probably do the 20% across each card. Others may have more advice though. The other factor that may come into place is your DTI, so if you have 2 cards at a $0 monthly payment and just one with a minimum payment and your DTI is stretched it could make a difference.

As for how long until they will take into account that you have paid off balances (I assume you mean the large card pay off above) utility has no memory, so as soon as the cards report the new balances your score will increase. Typically they are reported right after statement cut, and can take a few days to update through all 3 CRA's. You might be able to get the new lender to look at payments before they report but I would not depend on that and just give it the month or so it takes to fully report, this will also update your required payments for DTI if that is a factor.

[CH-7-Mission-Accomplished]

Pay the two in full and pay the one to 80%.  This will give you the best bounce immediately.  Then plug away at that 80% card and get it under 30%, of its limit and ideally between 1% - 10% of your total credit limits.

[dsdr]

Thank you for the response Arumnus!

If I could pay more I would.  After this chunk the remaining amounts will go much faster naturally and will be out of cc debt completely within six months most likely.  I look forward to being debt free though with a couple car payments (not too big a deal).  I'd like to get to the 10% on each but is just not possible.  The combo options are confusing at best.  I assume I have to at least get everything down below the 80% utilization mark at a minimum but what combo I have no idea.

My DTI is okay I believe.  My total credit card debt is equivalent to about 35% of my gross salary.  Once the chunk is paid, my debt will be down under 10% I suspect.  I will have to see timing with paying and buying the vehicle.  I may still qualify for good financing rate, which is my goal...that an a large jump in score.  

[dsdr]

ch-7 Rebuilding - Okay, i can do that.  I definitely want to see the increase up.  The 80% card should be dropped down within six months, which may get me up to 800 potentially...at least per the scenarios.

Thanks!

[takeshi74]

Score is the least of your concerns at this point with extremely high utilization like that.  You want to drop utilization on all cards as much as possible.  If you can get them all to about 20% or less then do so.  Utilization isn't just a scoring factor but a risk factor as well.  Get all cards as low as possible as quickly as possible.  Then worry about your score and reducing the number of reported balances.  Short term high utilization generally isn't an issue but prolonged high utilization can lead to AA.

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@dsdr wrote:

How long does it take to be at a point where the lender will take paying off into account for qualifying for low interest rate (new car)?

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Your scores will reflect the change in utilization when your updated balances report.  A score is generated based on the data in the report used as a data source.  What your lender looks at will also be the data in your report(s).

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@dsdr wrote:

Also, we plan to buy a new vehicle our credit is great except for the credit utilzation

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That's a big "except".  Keep in mind that utilization falls under Amounts Owed.  Do not exceed 30%.  Optimal, of course, is much lower.

http://www.myfico.com/crediteducation/whatsinyourscore.aspx