Credit help needed

[Anonymous]

TT is right.  The "$2 more" strategy is intended to reduce the chance of adverse action taken by the CC issuer, specifically balance chasing.  Nobody knows how much extra one would have to pay to get the optimum reduction in the probability of BC and it would likely vary from CC issuer to CC issuer.  As TT explains it has nothing to do with the FICO model.

I chose $2 because a lot of people who are trying to pay off cards have many cards with a balance and also do not have that much extra money to play around with.  What I'd love to advise is paying double the minimum payment plus $2, but that puts too much of a burden in practical terms -- the person might in that event have very little extra money (if any) to pay off high interest balances or high util cards.

So I have had to make a guess, based on how I would guess the programmers at the individual CC issuers would most likely work.  My guess is that they look at the minimum payment rounded up to the next dollar.  That would capture almost all of the high risk people they are looking for (people who only pay the MP).  $2 extra would take you out of that high risk mini-algorithm.  (Whereas paying exactly 2 cents more would not.)

Is that $2 sufficient?  Who knows?  Maybe for some issuers $3 or $5 is better.  Maybe some issuers want someone who pays more than double the MP.   But as a simple rule, $2 is probably a good balance between giving you some protection against BC vs. still giving you extra money to attack your highest util balances, highest APR cards, or tiniest balances (depending on what paydown strategy you are using).

What seems certain to me is that the traditional advice given in the "snowball" strategy, which involves paying only the bare MP on every card except the one you are attacking, puts you at too much risk of BC.  Thus the $2 extra tweak to that approach.

Bear in mind too that the "pay more than the minimum payment" strategy reduces but doesn't eliminate your chance of BC.  The following are also associated with BC:

* Having borderline FICO scores

* Having that particular card at over 88.9% util

* Having that particular card at over 68.9% util

* Having any other card at over 88.9%

* Having any other card at over 68.9%

* Having recent derogs

[Anonymous]

I did wonder about $2 but assumed that would avoid bots looking at payment == to minimum due. Or like CreditguyInDixie mentioned rounded up the the dollar. Makes sense, if someone manually audits you are going nowhere they will see it no time, but nowadays everything is program and this might be the easiest bet to avoid getting on the list.

[Asilomar]

Thanks CGiD, excellent explanation.  And it certainly makes sense from an internal algorithm point of view.  

[SouthJamaica]

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@Anonymous wrote:

I do have one more question and this is strictly based on how much of a difference in credit score one scenario makes compared to other for knowledge purpose. Personally I rather save real dollars compared to what I could save in if else scenario. The only thing that I forsee in near future I would want to do that would require having good credit is buying a house, I had been renting up until now and do not mind renting for another year or two if it makes financial sense.

Current plan: Pay all the accounts below 47% and Use the rest to pay off high APR credit cards, based on balances I mentioned earlier. Which would bring down overall revolving utilization below 27% but certain accounts would have higher utilization than 27-30%.

New Scenario for knowledge purpose: Pay all accounts below 27% keeping some balance in high APR credit cards, which could cost me in interest rate but may put me in better credit score category.

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Getting below 30% on individual account utilization is another major score-booster, so by all means do try to pay them down to the point where no revolving account is at more than 28%.  In my profile, getting the highest utilization card down from 31% to 29% is worth around 10 points.

[tayloreat713]

@CreditGuyInDixie why pay at least $2 more than min on the cards? Is that some credit score trick I'm not aware of?

[Anonymous]

Posts 10 (by TT) and 11 (by me) explain the reason for the $2 more strategy.

[tayloreat713]

Sorry, I read your response AFTER I sent the message. I appreciate the help!! 😁

[Anonymous]

@CreditGuyInDixie I followed your suggestions and paid of things like you suggested, I really appreciate all the help here, I moved from 670-690 score range when I initially asked for help to EQ- 779, TU-765 and EX-777. all cards are under 47% now and overall I am under 27% CC debt. Thanks for your advice.

[Anonymous]

You are very welcome!