Paying off credit cards

[Anonymous]

I will be asking a question about paying off credit cards but before that I would like to know the best places to get my credit reports and score?  Thank you.

[Anonymous]

"Best" is always relative.  Best in terms of what?

Cost-effectiveness is something that can be important to many people.  Because of that, I'd encourage you to subscribe to Credit Karma.  It's free.  It will enable you to get a free credit report from both TransUnion and Equifax as often as once a week. Just using Karma for free weekly reports is an amazingly good deal.

The scores Karma provides are not FICO scores but use a different model, called Vantage Score.  I think Karma's Vantage scores are fine, as long as you use them right.  The way I think they are useful (for someone on a budget) is to compare them against themselves. In other words, you can track your TU Vantage score against itself over time.  If you see some big improvements, you can reasonably expect that your TU FICO is also improving (though by more or less it's hard to say without pulling a FICO score).  Same for your EQ Vantage.

You can get your Experian report from AnnualCreditReport.com (though perhaps only once a year).

There are a number of places you can get FICO 8 scores from.  You may have a credit card that gives you a FICO score for free.  Or you can pay money for them.  You'll have to describe how important cost is to you and whether you are looking to buy a car or a house anytime in the next year -- that will influence the advice you get about the best score provider to choose from.  (CreditCheckTotal, MyFICO, etc.)

[Anonymous]

Thank you for the quick reply, CreditGuyInDixie.

Right now, cost effectiveness is important, but we are willing to spend a reasonable amount if other sources would give us more accurate information.

"You'll have to describe how important cost is to you and whether you are looking to buy a car or a house anytime in the next year -- that will influence the advice you get about the best score provider to choose from."

Without going into too much detail right now, we are carrying approximately $60,000 in credit card debt which is current as far as monthly payments; we struggle, but keep them paid.  We did just come into some money which would allow us to pay off about 80% of those balances. I may have a negative item on my credit report due to a medical/insurance dispute.

We want to formulate a plan to get rid of all but two or three credit cards and repair any issues which may be on my credit report.  Future plans may include relocating to another home in another state.

I appreciate the advice you have given me already.

[Anonymous]

Congrats to you guys for doing the hard but important work at understanding your entire big picture and then making the best series of choices for you.

Here is some stuff I can tell you for certain:

Definitely subscribe to Credit Karma.  It's a really good fit for you, because you don't yet have a sense (for sure) of what your credit reports look like.  Karma will enable you to see at no cost what your TransUnion and Equifax reports look like.  Furthermore, as you gradually make changes to your credit profile (paying down credit cards, perhaps eliminating a negative item like the medical debt, etc.) you will get to pull those reports every couple weeks and watch your progress.  The reports are the thing, bud!

As you begin pulling your credit reports, spend time learning what every line on your reports mean.  Keep track of every listed account and make sure that it each one looks right to you.  Does the date opened look right?  Date closed?  Amount owed?  If it is an installment loan, does it list the original amount of the loan?  If it is a credit card does it list the credit limit of that card?  Karma's a nice tool here because coming to understand reports often takes a while, several iterations over time, and with CK it's all free.

The learning process here should involve finding a lot of online resources for helping you understand how credit reports work and credit scores, what "revolving" and "installment" means, etc.  There are a ton of resorces for this, some of them here on myFICO. 

One thing you will want to do is find out what your credit limit is for each of your credit cards, the interest rate for each card, and the amount owed on each card.  That will help you make the best decisions for how you choose to use your 48k windfall. 

At some point you will want to pull your Experian report too, which is not available on Karma.  Personally I would wait to do that.  My advice is wait until you feel like you really understand the reports you get from Karma.  That might take a few weeks.  But yeah, at some point pull your EX report just to make sure it says basically the same things that the other two reports say.

I'd be curious to hear how many credit cards total you have right now.  (Open cards, not closed ones.)  It sounds like you may be planning to close several cards eventually.  ("We want to formulate a plan to get rid of all but two or three credit cards....")  Your idea of paying of CC debt is awesome.  The idea of closing cards is not bad either, but here it depends on other issues, chiefly whether the card has an annual fee and whether you feel that owning the card at all puts you at risk for getting into financial trouble.  If there is no annual fee and you think you could be safe as long as you never saw the thing, there may be a long-term case to made for keeping it open.  Folks here can give you some really helpful advice and stratgeies here.

My feeling is that just getting your reports and working with a free service like Karma for a few months would get you a whole lot for a $0 cost, and any time you can get something like that in life it's pretty sweet.

PS.  You also seem really interested in the bottom line question: Would it benefit us a lot to pay off 80% of our 60k credit card debt?  Hell f-ing yeah.  It will help your credit scores and it will save you a lot in future interest payments.  Your long range plan should eventually to pay off ALL of your credit card debt.  But in truth you should not do that today.  You should keep making on time payments on all accounts and quickly learn about credit and your reports and then make the best informed decision. 

Don't hesitate to keep us posted here and we'll be happy to help you further.

[Chala]

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@Anonymous wrote:

"Best" is always relative.  Best in terms of what?

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I thought this was my thread lol...however my question was geared towards building my credit  i was told i should have two credit cards instead of one and keep 80% or so of the credit limit paid at all times. Or should i just keep the one card is what i was asking!

[Anonymous]

Two cards are much better than one for building a high credit score.  Three cards are better than two.  More than three does not help you with your score, though it doesn't hurt you to have more than three.

If building your score means gradually increasing it over time, then it doesn't matter whether you owe a lot on your cards a lot of the time or (at the other end of the spectrum) whether you owe very little.  This is because FICO doesn't have any memory when it comes to your credit card utilization.  FICO doesn't look back over the last two years and say: good job, you have been keeping your balance really low that whole time!  All that FICO sees is what your most recently reported balances are (basically in the last month).

In that last month, however, your CC balances matter a lot.  To get the most points for your CC balances, you want your credit card utilization to be small.  Less than 9%.  And you also ideally would want all your cards to have a zero balanxce except for one.  The simplest way to think about that is, when you actually need a high score, pay them all down to zero except one and make sure that the remaining one reports with maybe $10 bucks or so on it.

All the above is about scoring benefit.  But there's a number of good reasons (that have nothing to do with scoring) to pay your cards in full each month. 

[Chala]

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CreditGuyInDixie wrote:

  To get the most points for your CC balances, you want your credit card utilization to be small.  Less than 9%.  And you also ideally would want all your cards to have a zero balanxce except for one.  The simplest way to think about that is, when you actually need a high score, pay them all down to zero except one and make sure that the remaining one reports with maybe $10 bucks or so on it.

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So basically use no more then 9% or 10% of my credit limit? Thats quite small isn't it? As long as i keep the balance low whats the problem with respect to raising my score in terms of points?

[Anonymous]

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@Chala wrote:

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@Anonymous wrote:

  To get the most points for your CC balances, you want your credit card utilization to be small.  Less than 9%.  And you also ideally would want all your cards to have a zero balanxce except for one.  The simplest way to think about that is, when you actually need a high score, pay them all down to zero except one and make sure that the remaining one reports with maybe $10 bucks or so on it.

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So basically use no more then 9% or 10% of my credit limit? Thats quite small isn't it? As long as i keep the balance low whats the problem with respect to raising my score in terms of points?

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I didn't say that you should never use more than 9% of your credit limit.  Just the opposite, in fact.  I said that if you have a long range plan of gradually raising your score over time (i.e. "building" a score) then you don't have to obey any kind of long-term utilization rule.  Rules like "always keep it below 20%" or "always keep it below 30%" or whatever.  The current and past FICO models don't care what you do with your utilization over time.  All they care about is what your utilization is at the moment when you pull your score.

So as far as credit scoring goes, you have to break how FICO works into two pieces: (1) What kinds of long-term strategies are good?  (2) What kinds of of strategies will give me an immediate boost?

Long term strategies are things like always paying your bills on time.  FICO has a very painful, long memory of even a single late payment.

Credit card utilization belongs to the immediate or short-term category.  You don't have to keep your CC utilization low all the time.  Just before you need an important credit pull. 

[Chala]

I understand, thank you for sharing your information. Any advice in finding a credit card for a person with fair credit that does not have an annual fee?

[Anonymous]

Great question.  I encourage you to go to the Credit Cards forum and post that question there.  Lots of people know about that stuff there.

I'd also research that question with Google.  Just now I typed in no annual fee credit cards for people with fair credit and got lots of possibilities.