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CO Balance vs. Credit Card Balance

Rebuild2022
Super Contributor

CO Balance vs. Credit Card Balance

I am trying to conserve cash / savings during this pandamic. I do have COs and I do have available credit on my secured cards. Does it make sense to make the settlements on COs to about 20-30% and pay it off using my Secured Cards? With this I do not have to close my accounts and take out the Deposit. I know my util will go up since I am paying with my credit card, but when COs settled I should see a net 60-70% decrease on my Util once the COs are settled and brought down to $0. I can pay off my secured cards in about 6-12 months and might cost me small interest rates but since the COs are settled to $0 my scores should slowly start climbing up. What are the pros and cons of this approach?

Gardening since 08/2020
21 REPLIES 21
Birdman7
Super Contributor

Re: CO Balance vs. Credit Card Balance

I see no cons except interest and are you gonna have to do a cash advance? Might not be a bad idea since you have the capacity to do so.

Be interested in seeing what other members have to say as well.
-Scoring wisdom: Credit Scoring Primer, Payment History, Amount of Debt, Length of History/New Credit, Mix/Disputes/Freezes/Searches, Mortgage Scores/Negative Reason Codes/V.9, Helpful Links,
Anonymous’s Reason Statements Thread,
iv's friendly statement to reason statement concordance,

ccquest’s Workbook to calculate metrics.
Clean/Thick/Mature/No New Revolver - 8,9; Clean/Thick/Mature/No New Account - 5/4/2.
Correct Ag.Util. under 5% all times. (Oldest/avg varies. Estimates above.)
Real world mortgage maxes are: EQ5-818, TU4-839, EX2-844.




(Everything said is JMHO and is not endorsed by FICO or MF. I have no affiliation with either, just a grateful member.)
Message 2 of 22
OmarGB9
Community Leader
Super Contributor

Re: CO Balance vs. Credit Card Balance

My concern would be whether the CAs even accept CC payments? I know a few do, but most only accept either debit or checking account direct withdrawals.


Last App: 05/30/2021
Capital One Auto Refinance Loan

Currently rebuilding as of 04/11/2019.

Starting FICO 8 Scores:




Current FICO 8 scores:


Message 3 of 22
Rebuild2022
Super Contributor

Re: CO Balance vs. Credit Card Balance


@OmarGB9 wrote:

My concern would be whether the CAs even accept CC payments? I know a few do, but most only accept either debit or checking account direct withdrawals.


Assuming they accept the cards.

Gardening since 08/2020
Message 4 of 22
Rebuild2022
Super Contributor

Re: CO Balance vs. Credit Card Balance


@Birdman7 wrote:
I see no cons except interest and are you gonna have to do a cash advance? Might not be a bad idea since you have the capacity to do so.

Be interested in seeing what other members have to say as well.

What I am struggling to find out is. I have positive payment history for last 18 months. What I am trying to do is debt settlement and consolidation. Except I am using my secured cards since no one is giving unsecured loan or cards at my scores. By the way my scores are around 600 now.  Positive side, so far I have settled and brought down 13 COs to $0 and several CAs removed.

 

1. The outstanding COs is $96k. That are reporting negative every month and holding the scores. By settling these will reduce my Util by $96KLet us assume that I was able to bring COs to $0 what score gain would I see? If not sooner when I might be able to see some gain scores that would allow me to get one or two single high limit cards.

 

2. Next question is what if make the settlement on all these accounts and pay by existing credit cards.Now my util on cards in good standing will go up by 20K. That would put the existing good cards at 80% usage. That I can try to bring it down to $0 in 6-8 months. But there will be some score drop. And, Yes, it will cost me some interest. I need to figure out how much. 

 

3. Some how if these 2 two actions would give me boost. What I am hoping to do is refinance my student loans that are abour $74k now at 6.5% APR to lower APR. That would save me about $400/month in student loan interests and hopefully help me to pay off the educational loans at a faster rate.

 

I guess, I am in a catch 22 situation. No matter what I am not able to get out of this loop. What would be the score gain if I settle all CO accounts $96k  to $0. What will be the score loss if my util on good cards goes up from around $35-$40 / month to say $19k.

Gardening since 08/2020
Message 5 of 22
Birdman7
Super Contributor

Re: CO Balance vs. Credit Card Balance

Unfortunately we don’t know exactly how chargeoff utilization factors in, so it’s hard for me to try to give you an answer because I really have nothing to use to base it upon.

Yes you will probably see a boost due to the reduced utilization because your accounts are updating regularly. Yes you will likely see a drop due to the increased utilization on your secured cards. Yes you will get those points back when you pay the cards down. So the result should be a net increase.

Without knowing exactly how chargeoff utilization works, I really can’t predict what the score change would be.
-Scoring wisdom: Credit Scoring Primer, Payment History, Amount of Debt, Length of History/New Credit, Mix/Disputes/Freezes/Searches, Mortgage Scores/Negative Reason Codes/V.9, Helpful Links,
Anonymous’s Reason Statements Thread,
iv's friendly statement to reason statement concordance,

ccquest’s Workbook to calculate metrics.
Clean/Thick/Mature/No New Revolver - 8,9; Clean/Thick/Mature/No New Account - 5/4/2.
Correct Ag.Util. under 5% all times. (Oldest/avg varies. Estimates above.)
Real world mortgage maxes are: EQ5-818, TU4-839, EX2-844.




(Everything said is JMHO and is not endorsed by FICO or MF. I have no affiliation with either, just a grateful member.)
Message 6 of 22
Rebuild2022
Super Contributor

Re: CO Balance vs. Credit Card Balance


@Birdman7 wrote:
Unfortunately we don’t know exactly how chargeoff utilization factors in, so it’s hard for me to try to give you an answer because I really have nothing to use to base it upon.
Yes you will probably see a boost due to the reduced utilization because your accounts are updating regularly. Yes you will likely see a drop due to the increased utilization on your secured cards. Yes you will get those points back when you pay the cards down. So the result should be a net increase.
Without knowing exactly how chargeoff utilization works, I really can’t predict what the score change would be.

 Thanks BM7. I tried simulator. I know it is useless. It says if I clear all my COs I would see a boost of 100 score points. If I max out all credit cards I would see a loss of 10 points.

Gardening since 08/2020
Message 7 of 22
Birdman7
Super Contributor

Re: CO Balance vs. Credit Card Balance

That may be somewhat accurate for the charge-offs I would not be surprised. Because they’re large and they are updating regularly.

And considering you’re in a dirty card, I think utilization is penalized less, maybe some members can chime in on how much utilization thresholds count for in dirty cards?
-Scoring wisdom: Credit Scoring Primer, Payment History, Amount of Debt, Length of History/New Credit, Mix/Disputes/Freezes/Searches, Mortgage Scores/Negative Reason Codes/V.9, Helpful Links,
Anonymous’s Reason Statements Thread,
iv's friendly statement to reason statement concordance,

ccquest’s Workbook to calculate metrics.
Clean/Thick/Mature/No New Revolver - 8,9; Clean/Thick/Mature/No New Account - 5/4/2.
Correct Ag.Util. under 5% all times. (Oldest/avg varies. Estimates above.)
Real world mortgage maxes are: EQ5-818, TU4-839, EX2-844.




(Everything said is JMHO and is not endorsed by FICO or MF. I have no affiliation with either, just a grateful member.)
Message 8 of 22
OmarGB9
Community Leader
Super Contributor

Re: CO Balance vs. Credit Card Balance


@Birdman7 wrote:
That may be somewhat accurate for the charge-offs I would not be surprised. Because they’re large and they are updating regularly.

And considering you’re in a dirty card, I think utilization is penalized less, maybe some members can chime in on how much utilization thresholds count for in dirty cards?

It counts for something. FWIW, as I paid off COs with balances I saw small gains every time. Even as I'm making regular payments and the balances decrease, whenever I cross thresholds I see some small increases too.


Last App: 05/30/2021
Capital One Auto Refinance Loan

Currently rebuilding as of 04/11/2019.

Starting FICO 8 Scores:




Current FICO 8 scores:


Message 9 of 22
Rebuild2022
Super Contributor

Re: CO Balance vs. Credit Card Balance


@OmarGB9 wrote:

@Birdman7 wrote:
That may be somewhat accurate for the charge-offs I would not be surprised. Because they’re large and they are updating regularly.

And considering you’re in a dirty card, I think utilization is penalized less, maybe some members can chime in on how much utilization thresholds count for in dirty cards?

It counts for something. FWIW, as I paid off COs with balances I saw small gains every time. Even as I'm making regular payments and the balances decrease, whenever I cross thresholds I see some small increases too.


Thanks for your input. I just want to get out of this catch 22. Unless I pay off the COs I can not refinance my student loans which can give me substantial reduction in interest rates. Otherwise I'l be paying $400-$500 in interest every month on my student loans. If I make the settlement I can get them out of the way but my secured card usage would go high and I have to pay credit card interest. I have to do some math and see what is the reasonable point. I need to do some thing soon so I can come out of this miserable situation. This is really messing with my situation. Yes, this Covid-19 effect on economy is not helping any one either. Let me see what I can figure out.

Gardening since 08/2020
Message 10 of 22
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