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Need to improve my score - how to pay credit cards?

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Anonymous
Not applicable

Need to improve my score - how to pay credit cards?

Hello everyone. I am a newbie on here but have been poring through the many, many helpful posts for the last few months. I've tried to search and read through as many threads about this topic as I can, but I'm still confused about the right course of action as some have recommended paying off the smallest balances first and some have recommended paying down all of them to a certain percentage of usage.

 

My goal is to up my credit score. I am trying to do a cash out refinancing on our home, but my credit score is impacting my efforts (my spouse has very poor credit due to a divorce a few years ago, so this will be mostly on me). My two major issues with the score - I have a very thin profile due to having just moved to the US a few short years ago, and my credit card utilization is very high (they're almost all close to maxed out). 

 

I will have about $5000 that I can use to tackle the credit cards, and was wondering how best to do it to maximize chances of upping my credit score, hopefully by a fairly good amount. I just don't know what I should do in terms of whether I should pay off the ones I can first, or distribute payments towards every one of them to bring down the utilization of each individual card. I'm embarrassed to list them, but here they are:

 

                                              Balance / Credit Limit

Citi Double Cash M/C             3489 / 3500 

Cap1 Quicksilver Visa             721 / 750.00 

Cap1 Platinum M/C                 1425 / 1500   

Discover IT                                1449 / 1500 

Best Buy Citi Visa                     1340 / 1500 

Heritage South Visa                  402 / 500  

 

They all have pretty high and similar interest rates, in the 20%+ range, so tackling the ones with the highest interest rates isn't really that much of a concern at the moment.

 

I've noticed that every little thing can cause my scores to fluctuate wildly due to the fact that my credit profile is so thin. My current FICO score 8 is 640 according to the free Experian site. I have no missed or late payments. I have two car loans, I can't do anything about those right now. I also have a small signature loan at the credit union that currently has a balance of about $1300. 

 

If you need to know anything else, please let me know. Please pardon my newness to these matters, but I am eager to learn more and take control of my finances. Thank you in advance!

Message 1 of 9
8 REPLIES 8
AZ-Jeff
New Contributor

Re: Need to improve my score - how to pay credit cards?

Sorry to hear about financial situation. $5000 will not be enough to get you to the 29.9% utilization rate on all cards, all can be 29.9 except for the Citi DC. You can search the internet for snowballing credit card debt spreadsheet, and that can set you on your way.  I'm not sure what your timeline is, but the credit bureaus will take a month or two to catch up.



         

Message 2 of 9
coldfusion
Community Leader
Mega Contributor

Re: Need to improve my score - how to pay credit cards?



There are multiple criteria that each have to be accounted for here, and there is also the question about what your next steps are going to be moving forward.  2 of the major criteria to keep in mind are utilization thresholds and the percentage of accounts that are reporting balances.  You can't "fix" both with $5K but you can make significant progress.

 

Every one of your cards is maxed out (>88.9% utilization) for scoring purposes.  That's issue #1.

All of your cards are reporting balances.  The direct relevance is that more than half of them are reporting balances.

The approach I am going to suggest is to first focus on the number of cards reporting balances and then attack utilization, because there is no way of knowing if you'll be balance chased until after you make the payments. 

 

There's only so much you can do with $5K.   But, you can:

 

a) get exactly half your cards reporting a 0 balance.

b) get 2 of your remaining cards reporting with under 48.9% utilization.

c) get the last card reporting under 68.9% utilization.

d) get your aggregate utilization across all cards under 48.9% utilization.

 

These are all relevant thresholds for scoring purposes.

 

If you're balance chased these numbers will be skewed due to the impact on utilization but unfortunately you have little choice other than to pay down first and observe the results.   Here's a quick spreadsheet listing each card with current balances and utiliizations, a suggestion on payouts, and the results of the payouts.

 

Moving forward, take the mininum payments you were making toward the 3 cards that are now paid out and instead apply them to the remaining cards with balances in addition to the payments you're currently making.

 

Again, this is merely a suggestion and I'm putting it out there in order to stimulate discussion from other members.  My feelings won't be hurt if others disagree with my suggested tactics Smiley Happy

 

 BalanceCLCurrent utilization amount of payoutremaining balanceCLupdated utilization %
double cash3489350099.7 11002389350068.3
quicksilver72175096.1 72107500
platinum1425150095 712713150047.5
discover1449150096.6 725724150048.3
BB Visa1340150089.3 1340015000
Heritage Visa40250080.4 40205000
         
 8826925095.4 50003826925041.4

 

 

 

 

 

(3/2024)
FICO 8 (EX) 846 (TU) 850 (EQ) 850
FICO 9 (EX) 850 (TU) 850 (EQ) 850

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Artist formerly known as the_old_curmudgeon who was formerly known as coldfusion
Message 3 of 9
SouthJamaica
Mega Contributor

Re: Need to improve my score - how to pay credit cards?


@Anonymous wrote:

Hello everyone. I am a newbie on here but have been poring through the many, many helpful posts for the last few months. I've tried to search and read through as many threads about this topic as I can, but I'm still confused about the right course of action as some have recommended paying off the smallest balances first and some have recommended paying down all of them to a certain percentage of usage.

 

My goal is to up my credit score. I am trying to do a cash out refinancing on our home, but my credit score is impacting my efforts (my spouse has very poor credit due to a divorce a few years ago, so this will be mostly on me). My two major issues with the score - I have a very thin profile due to having just moved to the US a few short years ago, and my credit card utilization is very high (they're almost all close to maxed out). 

 

I will have about $5000 that I can use to tackle the credit cards, and was wondering how best to do it to maximize chances of upping my credit score, hopefully by a fairly good amount. I just don't know what I should do in terms of whether I should pay off the ones I can first, or distribute payments towards every one of them to bring down the utilization of each individual card. I'm embarrassed to list them, but here they are:

 

                                              Balance / Credit Limit

Citi Double Cash M/C             3489 / 3500 

Cap1 Quicksilver Visa             721 / 750.00 

Cap1 Platinum M/C                 1425 / 1500   

Discover IT                                1449 / 1500 

Best Buy Citi Visa                     1340 / 1500 

Heritage South Visa                  402 / 500  

 

They all have pretty high and similar interest rates, in the 20%+ range, so tackling the ones with the highest interest rates isn't really that much of a concern at the moment.

 

I've noticed that every little thing can cause my scores to fluctuate wildly due to the fact that my credit profile is so thin. My current FICO score 8 is 640 according to the free Experian site. I have no missed or late payments. I have two car loans, I can't do anything about those right now. I also have a small signature loan at the credit union that currently has a balance of about $1300. 

 

If you need to know anything else, please let me know. Please pardon my newness to these matters, but I am eager to learn more and take control of my finances. Thank you in advance!


Try to reduce each balance to 28% of the limit on the account. If there's any money left over after that, try to zero out the smallest balances.


Total revolving limits 741200 (620700 reporting) FICO 8: EQ 701 TU 704 EX 685

Message 4 of 9
coldfusion
Community Leader
Mega Contributor

Re: Need to improve my score - how to pay credit cards?


@SouthJamaica wrote:


Try to reduce each balance to 28% of the limit on the account. If there's any money left over after that, try to zero out the smallest balances.


While there are different permutations of approaches to the problem, and it's possible for OP to get each of the 6 cards with a balance below 48%,  getting each of them below 28% would require ~$1200 more than OP has available.

(3/2024)
FICO 8 (EX) 846 (TU) 850 (EQ) 850
FICO 9 (EX) 850 (TU) 850 (EQ) 850

$1M+ club

Artist formerly known as the_old_curmudgeon who was formerly known as coldfusion
Message 5 of 9
Citylights18
Valued Contributor

Re: Need to improve my score - how to pay credit cards?

I don't know what your monthly cash flow is like but here is my recomendation.

 

-Each of those CCs will have a monthly minimum payment. It could be something like $35 dollars or higher depending on the percentage of account minimum repayment. What I would do then is look through your list of monthly bills and see if you can spot some smaller bills like streaming services which you could put on that card every month to increase cash flow. With the limits you have I woudn't put more than $75 a peice on any of those cards and try to concentrate on your lowest APR card.

 

-Concentrate on just paying cash for your discretionary expenses. This will prevent your balances from running up to much.

 

-Take the extra cash flow and paydown the highest APR cards. This will also reduce your minimum payments and increase your cash flow.

 

-You may also want to consider closing a card that is new to help increase your average age of accounts if you don't find it useful. Think carefully about it before you close anything down.

 

-Once you get your score up to about 680 or so consider taking out an 0% APR credit card, putting all your discretionary expenses on it for no APR for 1 year. Then use the additonal cash flow to make extra payments to your existing cards. Finally after one year take out another 0% APR for 1 year card but use it to balance transfer the other APR card.

 

Ultimately as you can see here if you can work your way up on credit score it will open the doors for more credit tools.

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Chase Ultimate Rewards 661,525 | IHG One Rewards 144,443 | Hilton Honors 143,801 | AMEX Membership Rewards 102,729 | World of Hyatt 90,413 | Marriott Bonvoy 65,343 | Citi Thank You 62,712 | Wells Fargo Rewards 33,652 | Southwest Rapid Rewards 28,105 | United MileagePlus 13,316 | British Airways Avios 12,333 | Jet Blue TrueBlue 11,661 | NASA Platinum Rewards 1,883 | AA Advantage 1,744 | Navy Federal Rewards 792 | Delta Sky Miles 175 | Virgin Atlantic Virgin Points 100 | Lowes Business Rewards 6,992 ($69.92) | Amazon Rewards 475 ($4.75) | Discover CB 499 ($4.99)
Message 6 of 9
Anonymous
Not applicable

Re: Need to improve my score - how to pay credit cards?

Thank you so much for all your helpful suggestions. I'm leaning towards paying off 2-3 of them completely and then getting the rest of them down. This balance chasing possibility is a distressing thought though. If there's a risk that I might be balance chased, would it maybe be better to aim to pay all of them down to a utilization percentage that would not trigger that? 

Message 7 of 9
Anonymous
Not applicable

Re: Need to improve my score - how to pay credit cards?

I just went through a similar issue and have learned a lot. Your goal, to maximize your score, would be AZEO (all zero except one), and then have that one below 8.9% utilization. There are several tiers of utilization and they're usually 9%, 29%, 49%, 69%, etc. I think. Do some searching on utilization and AZEO. What I would do if I were you would be to get as many accounts into lower tiers as you possibly can.

 

I'm going in order of top to bottom of your cards posted in the OP (Card 1 at top, card 6 at the bottom). 

 

Card 1: $1101 payment, new utilization of 68.24%

Card 2: $534 payment, new utilization of 25.00%

Card 3: $1050 payment, new utilization of 25.00%

Card 4: $1074 payment, new utilization of 25.00%

Card 5: $965 payment, new utilization of 25.00%

Card 6: $277 payment, new utilization of 25.00%

 

Getting down to 25% will protect you from interest charges taking you back up over 29% (hopefully). 

Take note of when you reporting date is for each account and make sure you pay down to these levels before that report date. You will see a rapid increase in credit scores. 

 

You said that you don't have any missed payments on your report, so you'll be pretty well off once you get these paid down. 

 

After the payments above, focus on paying any interest off on cards 2-5 at each statement while you get card 1 down to below 29%. At that point, pay off what you can to get as many down below 9%. And then pay them all off, except one, which you will leave a small balance on (2-4% at time of reporting is good). 

 

Good luck! Let the forum know what you do and how it works out. 

Message 8 of 9
Anonymous
Not applicable

Re: Need to improve my score - how to pay credit cards?

That is some great information, zed822. Thank you so much! 

 

I think I might follow your suggestion and see what happens. There's something very psychologically satisfying about being able to pay off some of the cards, and I'm tempted to go that route as well, but I'm thinking that having more cards below the 29% utilization might make a bigger impact as far as the credit score is concerned. Upping my score as quickly as possible is my number one goal at the moment.

 

We'll see how it goes. I'll definitely report back. 

Message 9 of 9
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