Utilization Question

[Charger_Fan19]

I have made heavy use of my revolving credit while unemployed and have recently got back on my feet with a new job. I plan on using my tax return to pay off some of these credit cards. My question is will I see a more significant score jump if I pay off some of the small balances in full, put a little extra on each to get them out of the "maxed" categroy, or pay a chunk to my largest balance?

Currently no lates or bads just super high utilization.

TIA. 

[redbeard]

Really, it depends what your goals are.

Since you didn't say how many, limits, current balances and what the refund will be, its hard to give much advice....

My suggestion is pretty basic:

- First, make sure no card is over 85% Utilization.  Above that, your score takes a big hit.

- Then, unless you plan on applying for credit soon, work the highest interest rate one down to nothing.

-  If possible, get all the cards under 50% utilization, then get them under 30%

Financially, you are better off getting the highest interest rate cards paid down as quickly as possible.  Score wise, you are better off getting the highest utilization cards paid down.  For scores, since you mentioned the 'max' category, that is priority one.  Even financially, this is important to help protect your rates on the rest of your cards.  Having no 'baddies' is good, your score will recover quickly.

Dan

[Charger_Fan19]

Thanks for the advice Dan. My reasons are definetly score related at this point. My lease is up in the spring and I want to get out of the hamster wheel that is leasing and just buy something I can afford. Every card I have right now is over 90% and scores are 650ish, the lowest 589 with equifax. Dealer said I need to get that one over 600 before I can move forward with the lease termination. 

[redbeard]

Getting under 85% utilization will get your score above 600 most likely, heck, probably with some headroom on that number.  You really need them well above that though so you can get a decent finance deal on a new car.  

Unless there is other reasons, doing a lease termination isn't usually a smart move just to buy a car, unless you are talking getting a car you can pay cash for and skipping the payment, or just buying out your current lease.

Lease terminations can be expensive and if you turn around and buy a new car you will have the new car depreciation plus probably a roll over of the lease fees into the new car and you'll really be on the hamster wheel for a while.  If you are doing this to significantly reduce your car payments so you can get your card debt under control, it makes some sense.  If you are getting a new car just because you want a new car, I would suggest waiting a bit longer, get the cards under control first and see if you can work through the lease.

Dan

[Anonymous]

If you cannot get all but one balance to zero, and the remaining one to under 30%, I would suggest getting all below 80%, or 60% would be even better, then snowball it from there.

[Charger_Fan19]

The lease ends April 1. According to the paperwork the residual is about 2K over market. I will be able to turn the car in and walk away for $149 but they will wave that disposition fee if I lease or buy another product. I'm hoping to buy just because I know that throwing money at a lease isnt the best use of my money. The dealer suggested I make sure I get all 3 scores over 600 so I can get out of tier 3 financing rates which he equated to putting a car on a credit card interest wise. The equifax score posted now for auto is 575, fico 589, others are 648 and 651. I think if you're right. I'm going to use my tax return to reduce the utilization on everything and then throw as much as I can to drop the bigger balances in march with my extra cash. 

[Anonymous]

Hoiw many balances are we talking about, how much are they and what will you have available to throw at them?

[Charger_Fan19]

Balance is spread across 6 cards for about 16.5K against 19K available on 9 cards. I know its enough to make some people freak but I used these cards to live off of while I was unemployed for 9 months. I was able to find part time work but that was really just peanuts compared to my living expenses. Very un Suzi of me...

Anyhow, I plan to put about $2500 of my tax refund towards it and I should be getting a bonus in March that I can put another $1500 in along with my regular payments. The cards are chopped up in to tiny bits so there won't be any more charges. 

[Anonymous]

Well, its not quite enough to get you below 60% on all, but its close. I'd spread it out to get them all to the same percentage.