Best strategy to get score boosted most quickly based on personal circumstances

[Anonymous]

In regards to which banks run the accounts I have... note that I've had at least one Bank of America checking account since 1996ish (even back when it was NationsBank, prior to their acquisition of Bank of America).

The four credit cards I have are:

1) Costco Visa (was previously mastercard) through Citibank - $10000 - this pays for itself by giving me a refund each year equalling a little bit more than my yearly membership fees there; obtained in 2014

2) Bank of America Americard Rewards Card - $20000+ - My second oldest account, basically points get stored and can be redeemed at 1% of point balance.  Yearly fee either nonexistent or at least less than $25 per year, probably because I've had this card for over 15 years

3) American AAdvantage Aviator Blue card through  Barclays - $17000ish - This was formerly a Bank of America US Airways Dividend Miles card until whenever AA bought out US Airways, and then changed to being administered by Barclays; my oldest account

4) Bank of America Bank Americard - $17000ish - my youngest card, obtained in 2014; no rewards program to speak of

I think they are all Visa cards.

If you don't mind my asking, why were you wondering?

[Thomas_Thumb]

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@Anonymous wrote:

I had a previous thread here related to working on a mortgage for a new home.  Turns out the home itself wasn't what we wanted, so I am back to square one on looking.  Now looking to seek mortgage approval in a few months' time.  As a physician, there are $0 down mortgage programs with a certain credit score minimum, so no worries about saving up for down payment aside from closing costs, moving expenses, etc.

Note that a lot of numbers are somewhat rough estimates here so may not match up with my prior threads here.  The concepts of what is going on are more important here I think, hence the rough numbers.

I am trying to improve my FICO score quickly by a reasonable amount.  This is simply for a mortgage, so the mortgage-related scores are what matter most.  I have a large number of installment accounts totaling around $300,000, many related to medical school debt, which are between 9 and 12 years old.  None can really be paid down much percentagewise right now and utilization is relatively high due to their age (I believe they are paid off over 30 years).  There is a private loan for physicians (considered a business loan) I have which is around the same age as the med school loans and matures over either 20 or 30 years, around $30,000.  Can't be paid off or down substantially.  The other installment accounts are related to grad school classes for the wife (2-4 years old), also which can't be paid down or off right now.  There are two car leases, both of which will mature and be closed within the next 3 months.  Both are nearly 3 months old.  Total on these two accounts originally was around $65,000.  Total number of installment accounts is close to 20 and they consist of all of the above, and nothing else.  My first question is this - will the closing of the car lease accounts be more likely to help or hurt my credit?  My wife claims vehemently that car lease accounts being opened or closed, aside from the credit check you go through initially, do not affect your credit.  If anyone here can clarify that, it would be helpful.  Not planning on opening new lease accounts when we return the cars and will likely be doing monthly rentals until getting a mortgage secured in a few months' time.

Other pertinent info -

I have never had a late payment or missed payment or terminated accounts or consolidation or bankruptcy - basically no bad debt or true bad marks on the report anywhere

I had a mortgage for 6 years which closed in mid-2014 when I sold my old home.  I currently rent.

I have learned the hard way recently that with my current financial situation, asking for credit limit increases will not lead to actual increases and may lead to threats of closing accounts

My revolving lines of credit/credit cards are 3, 3, 15, and 17 years old (approximate numbers).  My question, really, is this.  I have about 95% utilization on all four cards, which looks like so:

Card 1 - limit $22,000, balance $20,900

Card 2 - limit $20,000, balance $19,000

Card 3 - limit $17,500, balance $16,625

Card 4 - limit $10,000, balance $9,500 (3 year old account)

If I had, say, $15,000 to spend to reduce these balances (will be getting a $15k bonus check in early November), how would that be best spent?  Would it be better to pay all 4 down to 88%, or totally pay off the $10,000 and close it, or just totally pay off the $10,000 card and keep it open?  Basically trying to figure out if it's better to pay all cards down equally (percentagewise), or if it would be better to pay the $10,000 limit card off entirely and then work on either a) keeping 2 out of the other 3 at high usage while paying one down as much as possible, or b) pay each of the other 3 down equally (percentagewise).

Let me know if this doesn't make sense or if I can clarify further.  Hopefully will hear something helpful back soon. 

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1) Do not close any cards after payoff, the credit limit associated with paid off cards helps keep aggregate utilization low.

2) Fico mortgage scores, particularly EQ Fico 04, looks at % of cards reporting balances.I recommend reporting balances on 50% or less of your cards each month ... note I did not say onlt one card or less than 50%  ... I said 50% or less. In your case 1 or 2 cards is fine. Sure, reporting on one card only might provide a trivial increase over 2 cards but it's not something to fret about. Reporting balances on 100% of cards (for profiles that have 3 or more cards) does substantially impact all Fico mortgage scores.

3) Fico looks at utilization on individual cards in scoring - but the factor scored is the highest utilization among the cards NOT how many are above a given threshold. Ok, but what are the thresholds for individual cards? There is some debate on this but if you use the following benchmarks they will serve you well:

a. Above 89% - considered max out territory & substantial impact on score likely

b. Range 69% to 89% - considered high utilization & significant impact on score possible

c. Range 49% to 69% - considered significant utilization & noticeable impact on score possible (some profiles see no impact)

d. Range 29% to 49% - considered moderate utilization & minor impact on score possible (many profiles see no impact)

e. Under 29% - Considered responsible credit utilization & no negative impact on score on an individual card basis.

4) Fico scores weigh aggregate revolving utilization (all cards combined) quite heavily in scoring. The same thresholds apply as with individual cards with a few major differences:

b. Above 69% - considered a major risk and score severely impacted; all profiles & all Fico models

c. Range 49% to 69% - considered high risk for AG UT and score substantially impacted

d. Range 29% to 49% - considered elevated risk for AG UT and score significantly impacted regardless of profile.

e. Range 9% to 29% - considered moderate risk for AG UT and score noticeably impacted regardless of profile.

f. Under 9% - optimal range for aggregate utilization and no scoring penalty for this factor if AG UT% maintained at this level

Note: The adjectives used above for risk are my own creation.

In the OPs situation I would recommend getting all cards down to under 89% as a 1st step. Then progressively bring them down as a group to under 69%. After that pay off card #4 - but DO NOT close the account. Having less than 100% of cards reporting will positively impact Fico mortgage scores the most at this point. Applying the $6900 remaining on this card across all cards as an alternative would have no positive impact as no threshold would be crossed regarding highest utilization on individual cards.

[Anonymous]

Hello OhLawd!  So just to recap (and to keep it simple for you)....

Thomas Thumb and I are both recommending that you pay your existing cards down with the goal of getting them all at < 69%. 

After that, you could try paying off entire cards but never closing them.

This will also have the best chance of protecting you against any adverse action that your issuers might be inclined to take: you'll be indicating a responsible desire and ability to make a substantial dent in your debt with each issuer and card.  It won't eliminate the chance of AA but it will reduce it.

A slight tweak of my own was for you to have a clear plan (even after the 69% goal) that enables you to always be paying more than the minimum payment on every card.  Making only the the bare MP is one indicator of risk and you want to continue to be showing to your creditors that you will be pushing your debt level down faster than you have to.

And of course your plan should also include paying off all of your CC debt in entirety.  With your huge income starting up soon that should be realistic.  Once the debt is paid off you can continue to allow one card to always report a positive balance (you just want to avoid all cards reporting $0).