CC Utilization Advice

[Anonymous]

Hi Everyone,

One of my BFFs asked me for some help with her credit scores. I told her to do some research on this website but unfortunately, she is not computer savvy. I spent a few weekends with her to review her CRs and this is what I found...

It seems that her credit score is consistently going down hill due to high utilizations on her CCs. For a consistent 1-2 years, she has somewhere near 75-95% util. Her score is consistently going down (went from 720s to 657) and now shes the point where some of her CCs are getting CLDs. Other than the CC balances, she has a clean record with no latest/baddies and she has high limit CCs.

I told her that based on my finding from this forums, her credit score will continue to go down until she brings her balances down below 10%. She spent some time saving up a lot of money and at the moment she can pay down her CCs almost 50%. The question I have for you guys is... If she had 20K cash (for example), should she use the entire 20k to pay off  only 1 card, or should she use that 20K to bring 3 CCs down to 50% instead? Do you know which is better for her credit score? Does it matter?

Thanks in advance for the help.

[jsucool76]

If I were in her position, I would pay down any cards that were 80% or higher in util (by themselves, IE: a 2000 card, with a 1800 balance or something) 

I would pay them down to like 60% or something, and then I would focus more on paying down the cards with the highest interest rates. When you get into a debt situation like this, my opinion is that its more important to save money on interest than it is to worry about your score. Your score can always go back up, but you're never going to get back that money you paid in interest. 

[llecs]

My track would be a bit different. I would pay down as mentioned to 60% (you could probably get away with higher like 75%). You wouldn't want any maxed out cards. But with the leftovers I would pay the lowest balances first. FICO will add more points when you have more $0 balances (just not all $0).

I would also rip up the cards and not use them until the debt is paid off. I would use the CC numbers on occasion to show activity, maybe a cell phone or utility bill every 3 months or so.

[Anonymous]

Ideal util is 10% or below but generally one should have a util below 30% for good scores.

Even when you PIF your cards the util should be below 30%.

I would suggest she pays down her credit card below 30% and then apply for a 18 month 0% APR credit card like CITI Simplicity card.

One should use credit card for emergency liquidity and avoid revolving credit for long term.

[Anonymous]

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@llecs wrote:

My track would be a bit different. I would pay down as mentioned to 60% (you could probably get away with higher like 75%). You wouldn't want any maxed out cards. But with the leftovers I would pay the lowest balances first. FICO will add more points when you have more $0 balances (just not all $0).

I would also rip up the cards and not use them until the debt is paid off. I would use the CC numbers on occasion to show activity, maybe a cell phone or utility bill every 3 months or so.

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Okay, this sounds like a doable plan. I'll work with her to get her CCs down to 75%. Hopefully this will stop her credit score from going down any further. When she has more money saved, I'll have her pay down a few CCs down to a zero balance. Thanks for the solid advice, llecs.

[jsucool76]

Like llecs said, make sure she stops using the cards, otherwise it turns into a loop.

[Anonymous]

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@jsucool76 wrote:
Like llecs said, make sure she stops using the cards, otherwise it turns into a loop.

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True true. I assumed that she did that, but I'll mention it just to be on the safe side. Thanks Jsucool76

[HiLine]

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@llecs wrote:

My track would be a bit different. I would pay down as mentioned to 60% (you could probably get away with higher like 75%). You wouldn't want any maxed out cards. But with the leftovers I would pay the lowest balances first. FICO will add more points when you have more $0 balances (just not all $0).

I would also rip up the cards and not use them until the debt is paid off. I would use the CC numbers on occasion to show activity, maybe a cell phone or utility bill every 3 months or so.

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I agree with this, with a slight modification: pay off the lowest balance first, then spread the leftover over the remaining cards until they hit around 70%, then spend the rest on the highest interest account. I speculate that 100% of cards reporting a balance is a lot worse than having say 80% of cards reporting as such, and 70% utilization is well below the danger zone.