Care Credit Advice/High Utilization

Anonymous · ‎09-25-2018

This year, I have been on the journey to improving my credit. So far, I have three lines of credit with very low to zero utilization. They are all low limits. $250. Now I have been approved for $6,000 credit line with Care Credit. I need all of this $6,000 for dental work so obviously this is going to destroy my utilization rate. Any clue how many points my credit may plummet? I am at about 638 right now. Otherwise, any advice on how to leverage this? I have zero interest if paid within six months but I am not sure if I can pay it off within six months, as that would be $1000 a months. I don’t think I am eligible to get approved for any zero percent credit cards. Any help is appreciated!

K-in-Boston · ‎09-25-2018

Having a single card at 89% or higher utilization is going to cause a score dip but if your FICO 08 scores are truly at about 638, it likely isn't going to hurt that much as long as no other negative information gets introduced. For someone with an 850 their score may plummet with a card showing 89%+, someone sub-650 likely isn't going to notice a whole lot. Do what you need to do, and once you've paid it off you'll be golden. With $250 limit cards, those don't sound like lenders that are going to panic if they see a maxed out card - high utilization is better than chargeoffs and late payments.

Now I must offer this advice... That 0% for 6 months is a promotional APR, not an introductory one. If you charge $6,000 on it today and pay it down to $200 in 6 months, you're not going to pay interest on the $200. You will retroatively be charged interest from the date of purchase, so even though you think you paid it down to $200, your 7th statement will have a balance of around $1,040 (that $200 balance PLUS approx 28% APR x the original $6000 divided by 2 since it's only half the year) and you will continue to accrue around 2.33% interest on the new balance every month until it's paid! That is a very hefty amount of interest to pay for a loan of this size. So if you do go for it, please make sure you get your scores boosted up enough by the end of the 6 months so that you can transfer the unpaid balance prior to being hit with the retroactive interest!

Anonymous · ‎09-25-2018

Thank you SO much for the advice. This helps me a lot! I am working on boosting the score. I started in about March of this year (with much help of this forum) and boosted about 160 points so far. I am kind of at that point where I am not sure what else I can be doing. Like when you lose 100 pounds and can’t figure out how to lose the last ten.

K-in-Boston · ‎09-25-2018

You're very welcome. One of the main reasons those 0% offers are so common is that many consumers never pay it off in time so it's an easy way for the lenders to make loads of retroactive interest dollars. 160 points in 6 months is incredible! You'll certainly find that as you go up in score, it can be more difficult to add points. Time and patience are the biggest factors.

You have four credit cards now; do you have any open loans reporting? If not, that can be an easy way to tack on some additional points - check out share secured loans (SSL) for details on how to get one for very low cost by paying it almost completely off right away and then making very small payments on the remainder over the life of the loan. (Just make sure that the credit union you do it with applies payments so that your due date gets pushed back months/years when you make large payments, rather than shortening the life of the loan.) With a loan and your cards in good standing, wait it out in the Garden Club by not applying for any new credit for the next 6 months and see if there is any way to get rid of any derogs holding your scores down in the meantime. Then hopefully in 6 months you'll be ready to grab a BankAmericard, Diamond Preferred, EveryDay, Slate, Discover it, etc. to transfer the remainder of the balance.

Anonymous · ‎09-25-2018

It's impossible to guess how much your scores may drop (if at all) without knowing what your balances are on your three $250 limit cards. If you could go ahead and list out those 3 cards with their current [reported] balances it would be helpful. The difference in your answer could easily mean a 50-75 point variance in your scores.

For example, if you have very high current utilizationon those three $250 cards, your utilization may not change much by adding a maxed out account to the mix and your score may not drop much at all. Conversely, if you had very low utilization on those 3 cards, you'd be taking your aggregate utilization to near maxed out when adding this new line of credit. This would adversely impact your scores in a very major way.

Anonymous · ‎09-25-2018

I had already mentioned they are at very low utilization. I don’t use any of them except for to build credit. So I keep them all paid in full every month and only use up to about $25-30 on each one every month. Sometimes I forget to use them at all.

HeavenOhio · ‎09-25-2018

You should be offered much longer than six months to pay off a $6,000 bill. 24 months sounds about right.

Anonymous · ‎09-26-2018

@Anonymous wrote:
I had already mentioned they are at very low utilization. I don’t use any of them except for to build credit. So I keep them all paid in full every month and only use up to about $25-30 on each one every month. Sometimes I forget to use them at all.

Just a quick thought about total CC utilization. Your three cards (not counting the new Care Credit) have had limits of $250. You typically kept $25-30 on each one (most months). That would have made a total Util of 10-12%.

You were probably under the impression that this is ideal. It was good, but it was not best. You were leaving some scoring points on the table, which can matter a lot when your score is already low.

The best utilization in your case would have been under 8.99% (all cards combined). That would have meant under $67.49 total.

Now of course your utilization will be much higher, as you know, given the huge balance on the CareCredit. The best approach is to pay the other three cards to zero, and get your CareCredit to under 88%. The other three cards can be used for small purchases as long as you make sure the balance on the card is paid to zero at least a few days before the statement prints.

Next goal after that is to get your CareCredit to under 68%, then to 48%, etc.

Anonymous · ‎09-26-2018

Thank you very much for the advice. Yes I always pay to zero way before the bill is due. I usually don’t even use them much. The numbers I said were probably high. Just didn’t know an exact amount.

Anonymous · ‎09-26-2018

@Anonymous wrote:
Thank you very much for the advice. Yes I always pay to zero way before the bill is due. I usually don’t even use them much. The numbers I said were probably high. Just didn’t know an exact amount.

Paying before the bill is is due will make sure you never get charged late fees or (worse) have a late payment reported to the bureaus. So that's great that you do this.

It does not, however, help you control the amounts reported to the bureaus. That has to do with whether you pay before the statement date. This is the date that that the statement was printed.

Here's an example. Suppose one of your cards typically has its statement printed on the 3rd of every month. It will look at your current balance and place that amount at the top of the statement. It will also report that amount (e.g. $26) to the three bureaus. The statement will also tell you that you have roughly 25 days before your payment on that balance is due. In this example it would tend to be on the 28th. You are paying well before the 28th, but the amount was already reported to the three bureaus.

To make sure that your balance on a card is reported $0, you need to pay it to zero (or a negative number) at least a couple days before the statement prints. You can go online to each credit card and pull up your statements for the last six months and find out when the statement date was. That's a good thing to do. You may find (to take the example above) that the statements printed somewhere between the 2nd and the 5th. In that case, you would pay the card to zero (or a negative balance) before the 1st.

Right now (where every scoring point matters) you want all cards reporting zero except one. Then you want to pay that big CareCredit balance down as swiftly as possible: certainly to below 88%, then 68%, then 48%, etc.