Need help understanding what the best approach is to raise fico quickly with several options!

[Anonymous]

Need advice on how start paying down and correcting credit issues with my signing bonus

Hey yall, im looking forward to starting this journey to repair mine and spouses crap credit after our sons life threatening and expensive illness for several years got us into a mess credit wise. ( but hes doing well now in remission thank goodness!) 

I actually just got a promotion, and with that, comes a signing bonus of roughly 20k. Which is awesome, but we don't know where to start tackling debt credit wise. 

Right now we are both around 550-580 credit score wise and have:

one auto/installment loan ( my car with 17k left and high interest rate)

We also will have to purchase a car for my spouse as he is losing his company car with this job and moving to an executive office based job . The company is requiring a certain standard/type of car and the cheapest is around 25-30k.

We also are moving into an area where the cost of living is higher.( from SC to metro atlanta) where rent and cost of living will be higher. 

So we have a lot to consider and only have about 3 months to set ourselves up for longterm financial success. 

on top of the new car purchase, We have to apply for a rental ( our score isnt high enough to purchase even though that is our 1 year goal!) 

We know getting our credit scores up can greatly help improve the interest rates offered to us, possibly lower our security deposit, etc

All that to ask::::

1) Since we don't quite have the total amount to pay off my current car (its about 17k left and we need to save at least 5k of bonus to move ) What is the smartest way to increase our credit power QUICKLY? 

Is it best to pay a large amount down off the existing car loan reducing our debt on that loan to about 2k to hopefully pay off remainder in a few months and only have one car loan out (new one) ?

or 

Or is it smarter to pay off our credit cards, to get the quickest boost in credit to hopefully get lower interest rate with new car?

or
we have a few collections (4 of them- 3 are smaller medical bills around 100 each and 4 years old and one BIG 2000 dollar one for a credit card that was charged off 3 years ago) ive read paying off collections don't really help increase your score that much unless they are removed completely, and will just be a negative mark remaining marked paid. is that true? 

Sorry for the long list of questions I appreciate your help in this matter!

[Anonymous]

I feel that most people's scores are suffering because of the reported utilization on their credit cards.  The "quickest" way to improve scores is to bring your % down where you aren't getting killed on the scores.  

FICO takes into account both individual card utilization AND total utilization.  Your best bracket to be in for scoring purposes is 8.9% of your credit line or below.  This includes both individual card balances and total card balances.  Generally you can have single card balances up to 28.9% without scoring loss as long as your total utilization stays below 8.9%.

I don't know what percentages and how many cards you have so it is hard for me to help in that regard.  Figure it out for yourself and you should see scoring gains/losses when you cross thresholds @8.9%, 28.9%, 48.9%, 68.9%, 88.9%.  Once you get over 48.9%, you start getting pretty heavy penalties.

[Anonymous]

Thank you so much for your response!

If it helps, as far as credit cards:

I have BANK OF AMERICA 2500 on it with 3000 credit line

I have two capital one cards both with 1000 line and 750ish on each.

I don’t know if this matters as I don’t see it listed on my report as a credit line but I also have a furniture store card with 4000on a 6000 line of credit.

With my new job the signing bonus can be used for anything so I was thinking of using it to pay down some debt/credit issues in hopes the score might go up quick enough to allow me to get a better interest rate on new car loan ( right now hanging in the 590 zone I’m looking at 17% which is murder for my long term goals)

So you think I should pay total credit card debt down to about 8% ? Do I include the furniture retail card?

Any guess how much of a bump that’d give a 590ish score?

[Anonymous]

What agency has your collections? You should try to do a PFD. You can probably settle the credit card for half and depending on the agency, some will actually delete the collection. I’d get those collections taken care of first. Then pay your credit cards down. Did your husband negotiate a car allowance since they are making him get a certain type of car? I’d find the cheapest appropriate car... it doesn’t have to be new.

[Anonymous]

He has 3 collections, one for 112 medical bill he sent a letter to pay in full if they remove it. Another medical for 150, sent a letter again to pay in full for deletion. Those are no problem.

The big one is an old credit one card from 2016 the outstanding balance on it is 2008, and lvnv funding has it. They’ve sent him a letter offering to take 900 for it, but if we’re going to pay it I’d like them to remove just don’t know how likely it is and if it’s worth waiting for their response if we could just pay it and it improve our score.

He negotiated for it in his salary to a lot for a car payment, and his signing bonus ( 20k) was given with the idea he’d use it toward the purchase. But unfortunately his employer doesn’t realize not everyone has executive level credit scores lol.

Our concern is we could get another car financed at his interest rate now but wondering if applying the 20k to get credit score up and tackle debt is better long term for our goals of eventually buying a home and getting out of debt. If that makes sense

[Anonymous]

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@Anonymous wrote:
He has 3 collections, one for 112 medical bill he sent a letter to pay in full if they remove it. Another medical for 150, sent a letter again to pay in full for deletion. Those are no problem.

The big one is an old credit one card from 2016 the outstanding balance on it is 2008, and lvnv funding has it. They’ve sent him a letter offering to take 900 for it, but if we’re going to pay it I’d like them to remove just don’t know how likely it is and if it’s worth waiting for their response if we could just pay it and it improve our score.

He negotiated for it in his salary to a lot for a car payment, and his signing bonus ( 20k) was given with the idea he’d use it toward the purchase. But unfortunately his employer doesn’t realize not everyone has executive level credit scores lol.

Our concern is we could get another car financed at his interest rate now but wondering if applying the 20k to get credit score up and tackle debt is better long term for our goals of eventually buying a home and getting out of debt. If that makes sense

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I agree with tackling the debt you have to get a better score and also sets you up for long term as you want. 

[Anonymous]

When you say debt, you mean credit card debt right? But what about the collections? should I attempt to do a pAy to delete? And any suggestion on what to bring my credit utilization down to for the best increase in score?

[AllZero]

Welcome to the community. Congratulations on your promotion. Best wishes for your son.

I agree with Overmedicated. Follow that advise. Your scores are taking a beating!

Quick math

BoA $2500/$3000=83.3% utilization. Pay $2055 or more.

CO#1 $750/$1000=75% utilization. Pay to zero.

CO#2 $750/$1000=75% utilization. Pay to zero.

80% Aggregate utilization.

For FICO scoring algorithm, you want one card to report. Look into AZEO (All Zero Except One). You'll cross those thresholds and get a really quick boost in score once your new statements report.

Where are you getting your FICO scores?

[Anonymous]

Well I wasn’t even looking at FICO to be completely honest as I was only using credit wise on my capital one and also credit karma and credit sesame.

All of those scores ( which I believe are vantage? I have no idea 😂) have been consistently around 580-600.

But when we applied for a look into what we would get approved for a mortgage we got a big fat denial and our FICO 2 was like 499! Why such a big difference? And is FICO 2 what most mortgage people use?

[AllZero]

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@Anonymous wrote:
Well I wasn’t even looking at FICO to be completely honest as I was only using credit wise on my capital one and also credit karma and credit sesame.

All of those scores ( which I believe are vantage? I have no idea 😂) have been consistently around 580-600.

But when we applied for a look into what we would get approved for a mortgage we got a big fat denial and our FICO 2 was like 499! Why such a big difference? And is FICO 2 what most mortgage people use?

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Those are great tools to monitor your credit report. It won't be useful for the majority of the lending decisions from finacial institutions. Look into www.creditchecktotal.com (part of Experian). $1 to run your 3 bureau credit report plus your Experian Fico 2. Cancel before the 7 days so you won't get charged the reocurring fee.

If your furniture store is not reporting, you won't have to pay that off early.

For mortage, they will use your middle score from: Experian Fico 2, Transunion Fico 4, Equifax Fico 5

Get your FICO scores in order. Pay off your credit card debt. Look into PFD (pay for delete).