Need Score Improvement ASAP: best strategy: UPDATE

[Anonymous]

 UPDATE:  So my dh has credit monitoring subscription through his bank and we just checked his credit score and this is incredible: they were 665 or more!  Five days ago when he got the news of the late payment for the mortgage lender, she said his scores were from 566, 586, 605, with experian the middle score.  On that same day when he checked through his bank monitoring system, he only subsribed to experian and it reported a score of 608--obviously different from what the lender had (probably different algorithms) but definitely showing a drop as the lenders did.  So, if the late payment was reported in October and now newer data of on time payments are registering, do you think that the scores my dh is now getting indicate that the lender's scores are improved too and even perhaps above the 620 benchmark?  Also, experian is no longer showing a 30 day late charge...is this for real?  Should we have the lender pull credit?  We paid off two CCs today but it isn't registering yet, and we planned to pay down more debt this wee--should we expect to see any more gains? We were thinking of waiting until Friday or maybe monday but maybe we should do it sooner?

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Hi, my first time on the boards so if a similar question has already been asked please link the thread (took a quick peek but didn't see my situation).

My dh and I are set to close on a house by Dec. 10.  The lender re-ran credit late last week do to a mispelling of a name and in the span of two weeks a 30 day late payment on a CC popped up and my dh's credit score fell below the 620 (it dropped by about 70-80 points).  We have disputed that late payment as well as written a letter to the CC company for a Goodwill Adjustment (dh is always on time with payments so this is a random fluke).  We hope that we can get this late payment off his report and that this will help his score. In the meantime, we're trying to do all that we can do to bump up his score.  Here's my question, we have a few debts (CC's and car loan).  Today dh paid off most of a $2K CC, and put another couple hundred on another.  Car loan is $9500.  If we pay $8K to our car loan tomorrow, how much would that help?  Do you think with paying down the CC and then paying off most of the auto loan would give him about 30 points in a short time?

Thanks for any information.

Message Edited by hokypoky on 11-17-2009 06:32 PM

[Lel]

How many points does your husband need to gain? 

Paying down the balance of your auto loan - installment debt, not revolving debt like your credit cards - is not going to make a significant impact on your husband's credit score.

What is his current utilization of available revolving credit?  If it is above 9%, then he could gain a few points by paying down his CC balances.  Any extra cash you have to pay off debts should be directed at CC debt, if this is an issue.  If he has multiple cards reporting balances, then he would do well to pay off all of them, and let one credit card report a balance.

Did the late payment actually occur?  You describe it as a fluke - does that mean that he accidentally missed a payment, or is it an error on the part of the credit card company?  If he really was late, then disputing the late payment was probably not the right move, because some lenders will not fund a mortgage if there are unresolved disputes.  Often, this refers to disputed debts/collection accounts as opposed to disputed late payments, but in general it's not something that he wants to have on his credit report.  The goodwill approach is probably your best bet. 

[Anonymous]

Thanks for your answer.  I think by utilization I think you mean the percentage of his credit limit that he has actually used:  If I recall, he just has the two credit cards:  the first, after making a payment today, is 10% of the limit and the second is about 60%.  So you'd recommend paying another couple hundred on the second to get it down to about 10%

When you say he should get a couple of points by paying down the CC, how many points are you thinking?  Only 2-3 or perhaps 10-ish?

The late payment occurred because he had tried to set up instant payment but for some reason he didn't get it set up properly and he didn't realize it until it was late.  Oh geez on the dispute...I hope we didn't hurt anything by doing that.

I don't know exactly how many points he needs...I just asked him and he couldn't recall (it's been a stressful 3 days, if you can imagine.) I think though that he should be okay with about 30 pts.

How many pts. would he get do you think from paying down the car if we also pay down that 2nd CC?

[Anonymous]

The car loan is an installment loan-no gain will be reached by paying down or off.  Revolving credit =credit cards- effect your debt utilization ratio-if you are above 10% utilization, paying down to 9% would mean a gain of a few points...maybe 5-15...you will be effecting 2 ratios- 1. overall ratio of revolving debt, and 2-ratio of an individual card.  This is two positives you will gain...hopefully putting you where you need to be.  30 points seem like a stretch to me...but each case is different.

We leased a house we were planning to purchase in spring of '08.right when the mortgage crisis started.  The rules were changing each day and we had to come up with more money for a down payment.  I know how stressful this can be!  Keep me posted..I am interested to hear what happens!

[Anonymous]

Thanks for your reply.  I guess I was mistaken--he has another CC that has $5000K on it--credit limit was $13K (it is now closed).  We're thinking of instead of putting $8K on the car, putting $4K on on the car and then $4K on that 3rd card.  So, then we'd have this scenario where we tackle the following four debts like this?

CC #1: paying $1200 tomorrow to bring balance to $194.00 on a $2000 limit (aprox. 9.7%)

CC #2: paying $700 tomorrow to bring balance to $194.00 on a $1000 limit (aprox. 19.4%)

CC #3 possibly pay $3800 on $5000 current balance reducing balance to aprox. $1200 of $13K limit (again, closed cc)

Auto: possibly pay $4200 on $9K current balance

The second alternative would be 

CC #1: balance of $194.00 on a $2000 limit (aprox. 9.7%)

CC #2: balance of $194.00 on a $1000 limit (aprox. 19.4%)

Auto: pay $8000 on $9K current balance

From what it seems you are suggesting the 1st strategy would give us more bang for our buck?  Our ideal situation is that we could get the CC to give us the Goodwill adjustment asap, which would hopefully bump his score back up and then we'd pay CC #1 and CC #2 as well to help.  Then  we could use all of the $8K towards the auto. (I do hear what you are saying about the auto being an installment loan and might not provide that significant of a bump.  However, paying down that debt must do *something* no?  I would love to get that debt paid down b/c it really is our biggest monthly payment aside from rent/potential mortgage).

I really would like this to work out.  We've waited months to hear on the is house (short sale) and I cannot believe such an unfortunate circumstance.  My parents said that they could co-sign but we'd really like to do this without them.  

Anyway, any good suggestions are appreciated.

Message Edited by hokypoky on 11-16-2009 08:45 PM

[Lel]

To reiterate, the effect of bringing down the balance on the auto loan - an installment loan - is going to have a minimal effect on his FICO score.  Paying off a large chunk - even paying it off completely - might gain him a couple points at best.

The additional credit card - the closed card with a remaining balance - is also playing an important factor in his FICO score.  Even though it is closed, the balance and the credit limit are still being used to calculate his FICO score.

According to the numbers you've provided, the total credit card balances are:

CC #1: $1394 of a $2000 CL

CC #2: $894 of a $1000 CL

CC #3: $5000 of a $13,000 CL

This comes to a utilization of 45.55%.

The balance and credit limit of the closed credit card will be used in the calculation of your utilization until the balance hits zero, at which time the CL will be removed from his calculations completely.

He wants his revolving utilization to be at 9% or less.  With $8000 to spend, you could pay all these credit cards off completely, but just remember that when that closed card's balance is zero, he will go from having $16,000 in available credit to $3000.

The FICO score also looks at the utilization of individual cards as well as cumulative utilization.  That is, having a maxed-out $1000 CL card will still have a negative effect even if you have a zero-balance credit card with a $20,000, which would make your cumulative utilization less than 5%.  Also, it's generally felt that you should have no more than half of your tradelines reporting balances.  Since your husband has 3 credit cards and one auto loan, ideally he would have only two reporting balances.

So here's one strategy:

1) Pay off both of the low-limit credit cards completely - zero balance.  This will bring the number of tradelines with balances to two.

2) Pay down the closed CC's balance to 9% of its original CL - so bring it down to $1170.  This will preserve its credit limit for FICO scoring purposes, in case he needs to use the other CCs for purchases.  That way, his utilization won't be affected if he suddenly needs to put $500 on one of the cards.

If he really wants to pay down the auto loan after these moves, then that's his call, but it really isn't going to have as much of an effect as the suggestions above.

[Anonymous]

There is one advantage of  paying down the car loan-but it has nothing to with your FICO.

If a loan has 10 or less payments remaining, the payment is not included in your debt-to-income ratio.  The could mean that you would be approved for more money--but all of that is a moot point if your FICO isn't high enough.

[Anonymous]

Lel, thanks so much for taking the time to provide so much information.  I imagine this has been discussed plenty here, but since I'm new I'll boldly ask, is paying off the two credit cards really a good thing?  I've always heard to keep a small balance b/c paying them off might effect one negatively.  Can you (or somebody else clarify this for me?).  Obviously I want to improve his score and not hurt it, so I am missing some of the nuance to credit score calculations.  Again, if there is thread that explains why paying off the CC is better than leaving a small balance, please link it for me.

thanks again!

[Anonymous]

rlsrlj, I had no idea!  That is great to know, thanks for that info.

[Anonymous]

From the research I have done-here is the best credit card balance formula:

1.  Less than half of all revolving credit lines should have a balance.  For example, if you have 5 credit cards-3 of those cards should have a balance of ZERO

2.  For the accounts with a balance-it should be less than 9% of the credit limit.  For example you have 5 cards, 3 of those cards should have a ZERO balance.  The other two cards should have a balance less than 9% of the limit-if the limit is $1000.00 on each-they should have less than $90.00 balance.  It's importance to have a small balance on those two cards-but not the other three. 

3. Also when you add up all the of the balances and divide by the total credit limit-this will be your total utilization-which also should be less than 9%.

This is the best scenario for utilization points.

Based on your previous message I would pay off the first 2 cards...take the leftover money and pay down the 3rd card to as close to $120.00 as possible to give you the less than 9%. 

Does anyone here disagree?  The only question that I have is the fact the 3rd card is closed....hopefully someone else can verify this-but I believe the limit is counted in the utilization ratio until the balance goes to zero-if this is true-do not pay the 3rd car off.  Maybe someone else can verify.

Message Edited by rlsrlj on 11-17-2009 07:23 AM