Paying off 2 cards with a small personal loan effects

[Hockeypnc1]

Hi,

I have $1,100 owed to Discover (about 28% APR) on a $3,300 line

I have $700 owed to UW credit union (about 16% APR) on a $1500 line

DCU approved me for $1,900 at 14% for 24 months. They will overnight a cheque to me via FedEx and I plan to pay off both cards completely.

My question is, how will getting these cards down to 0 and adding a small loan to my portfolio help me?

I also have a CreditBuilder loan with First Citizens (owe about $450 on a $1,000 loan) that I plan to pay off in the next month. Once this loan is paid off, the bank gives me the full $1000, and I would use that to make a nice payment on the personal loan.

I also have a car loan through DCU for about $11,700 that I just got in March after refinancing.

I also have about $82,000 (or so) in student loans that are currently in deferrment because I am a half time student.

Scores are:

645, Transunion, provided by Discover (3-17-19 was the pull)

649, Experian, provided by free Experian app (4-12-19 was date of update)

614, Equifax, according to a PenFed credit card denial this month

[Anonymous]

Adding the loan won’t help in a scoring sense because you already have loans. It comes down to offsetting effects of an inquiry/new account/age effects (resetting AoYA to zero and lowering AAoA), vs having zero balances on the cards, which fall through two scoring thresholds each. It’s hard to predict which way it will go.

I’m actually working on a similar plan right now, but adding one loan (I have one already) to pay off $7676 across 11 cards, dropping them through one to four thresholds, so my situation isn’t an apples to apples comparison (larger dollar value, many more tradelines, and my age effects are likely less impact since my AoYA essentially won’t change and my AAoA will still be above 3 years, because I have 3 tradelines among my profile that are over 6 years, with one active card at 13 years). Best guess is mine will be a score improvement but my file appears to be thicker and older so I’m not sure in your case.

Regardless, if you’re paying off the debts at a lower APR, it’s a positive financial move and that should be kept in mind.

[Hockeypnc1]

Yes my file is pretty thin.

The cards are only about 2 years old, but have been carrying balances pretty much the whole time. That Discover card at 28 percent sucks. I called threatening to cancel the card due to the large APR, they gave me 12 months at 0 percent till March 2020. That will help for future purchases at least.

I think paying them off and leaving them alone for a little bit can only help my score. The $700 out of $1500 is nearly 50 percent and the $1100 out of $3300 Discover card is about 33 percent.

The other 2 cards I have are brand new in 2019--both are at $0 out of $3000.

[Hockeypnc1]

Should also add that I have about 12 or so Comenity cards and 2 Synchonory cards

Most of the Comenity cards are $500 or less limits, one is $1050 limit, another is $1130 limit. All are at 0 except one:

is at about $275/$1130

One Synchonory card is a $7,000 limit, the other is just $200.

[Anonymous]

Gotcha. With many of your cards at zero, you are in a better position in that respect. Again though, regardless of score movement, putting yourself in an improved financial position is never a bad idea, and it naturally lends itself to better scores indirectly as managing money more efficiently will naturally put you in a position to pay more easily and/or more completely.

[Hockeypnc1]

Thanks!

Yeah I figure if I can get these two cards back at zero and avoid using them, I can see a score increase. I also am excited to pay off my creditBuilder loan and use that to pay back some of this small personal loan. 

The personal loan has a monthly payment of $91 per month for 24 months, but I think I can get it paid off quicker than that. It sure beats the 28 percent APR that Discover is charging.

[Hockeypnc1]

I paid off both credit cards in full. They will soon show 0 percent utilization.

Am excited to see a small boost in my score due to paying these off completely. 

Also plan to payoff that CreditBuilder $1000 loan that has $450 left to pay on it. Use that $1000 to make a payment towards this new personal loan.

[FireMedic1]

Let 1 card report 10 bucks a month. Zero'ed out cards you lose points.

[Hockeypnc1]

I can definitely do that.