Difference in having more then one card report a balance?

[Anonymous]

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@creditwherecreditisdue wrote:

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@Anonymous wrote:
My question is, I don't have a mortgage and never will. Feed back says it hurts my score. Should I take out an equity loan

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Yes -- if the proceeds go to pay down the revolving debt and nowhere else. This would help your credit picture emmensely.

As for what HTSU said I pretty much agree, except I view the magic UTIL line as being 35%. I would want to see every revolving account at < 35% UTIL ASAP and then killed off.

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Even if my above plan dictates thats all my revolving accounts will be paid off in less than a year? That is why I think the whole fico thing is finicky. I will never have a house loan and be punished because of it. Someone gets a better score for owing money. Doesn't make sense. Congress needs to step in.

[Lel]

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FinickyFico wrote:

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@creditwherecreditisdue wrote:

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@Anonymous wrote:
My question is, I don't have a mortgage and never will. Feed back says it hurts my score. Should I take out an equity loan

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Yes -- if the proceeds go to pay down the revolving debt and nowhere else. This would help your credit picture emmensely.

As for what HTSU said I pretty much agree, except I view the magic UTIL line as being 35%. I would want to see every revolving account at < 35% UTIL ASAP and then killed off.

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Even if my above plan dictates thats all my revolving accounts will be paid off in less than a year? That is why I think the whole fico thing is finicky. I will never have a house loan and be punished because of it. Someone gets a better score for owing money. Doesn't make sense. Congress needs to step in.

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The thing about credit scoring is that it is specifically created to assess how well a person manages credit, which is a tool that prospective creditors use when deciding whether to offer someone a new loan or credit card.  If there is no evidence of use of credit, then a meaningful score cannot be generated because the scoring algorithms have no data with which to gauge one's creditworthiness.

Conventional wisdom states that to maximize your score, you should let at least one credit card report a balance.  That doesn't mean you have to carry a balance (which accrues finance charges).  When your credit card statement closes, the statement balance is reported to the credit reporting agencies.  This will demonstrate recent use of credit cards, which is a positive factor in FICO scoring.  You can pay in full and owe no additional interest.  This is what I do, and I don't consider myself to be in credit card debt - I'm just deferring payments for goods and services by a couple weeks (and accumulating some rewards at the same time).

The importance of having of broad mix of credit accounts is perhaps a little overstated at times.  While it is true that a diverse credit profile is considered to be a positive factor, it also represents just 10% of what goes into a FICO score.  And it is possible to have a high FICO score without having a hugely diverse mix of credit.  When my wife and I applied for our mortgage 4 years ago, all she had was a small number of credit cards which were sparingly used and a single paid-off car loan.  No student loans, no personal lines of credit, no mortgages.  Her scores were close to 800.

To an extent, I agree with you about the complicated logic of FICO scores.  As a matter of fact, my very first post on these forums asked "how fickle are the FICO scores?"

[haulingthescoreup]

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FinickyFico wrote:

Very good understandable answer. Would you agree with my approach before I barage you with my next question?

I have decided to take this strategy. I owe about $33000 in revolving. I do have 4 paid off. I'm going to leave them alone. I'm going to pay $3k per month over the next year or so until they are gone. I'm going to pay the smallest cards first. Make it nice and neat. Simple and clean. It might cost me a few $ in interest but it will make me feel good watching thoes accounts drop to 0. Then the biggest account will die in the last 3 months. That is the plan I'm going with.

My question is, I don't have a mortgage and never will. Feed back says it hurts my score. Should I take out an equity loan?

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Sure, what you're proposing is called "snowballing." Start with the smallest balance, kill it off, move to the next smallest, and so forth. As you say, it will cost some extra interest $, but it's good for morale, and it helps to reduce the number of accounts with balances, especially really high balances.

As for pausing at >50% vs >35%, sure, the lower the better, but when you're dealing with huge balances on multiple cards, I like the idea of setting 49% or less as the intermediate point, because under 50% is useful for scoring purposes, and it allows the consumer to start on the next card sooner. But if you're not worried about scores during this process, snowballing down to $0, one card at a time, is perfectly appropriate.

If you have the available income to tackle your debt (and it sounds like you do), there are a variety of ways to eliminate your debt. Just pick the one that makes the most sense to you.

And both responses to your loan question are good --a signature loan can be used to pay off cards, and it's often available at a lower APR if your cards have rate-jacked you. It might help your FICO scores once the dust settles by increasing your credit mix. But it's not necessary to have more than revolving credit for good FICO's, especially if your history is on the longer side. I wouldn't go get a loan just to make the FICO gods happy.

[marty56]

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@haulingthescoreup wrote:
I wouldn't go get a loan just to make the FICO gods happy.

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Starting to quote DR, good.  I will watch his TV show waiting for your Plasectomy film.

Using the debt snowball approach and watching each card be PIF'd in turn noit only snoballs your debt but the feeling you get as each card goes to 0 also snowballs till the last one is just pure ecstasy as you cross into the relam of the CC debt free.

[creditwherecreditisdue]

35% over 50% for two reasons:

     1) It is also a FICO scoring UTIL plateau, and

     2) Avoidance of AA. Getting and keeping that individual account UTIL under 35% seems to be useful in avoiding AA. FF's original issue was AA, which apparently is/was due to very high UTIL on a number of cards. Best way of avoiding that situation is to never allow any revolving TL to exceed 35% UTIL. It is also important not to make minimum payments on the accounts you have on the slow payoff track. Paying at least 5% or more of the balance every month is also key for AA avoidance. These are not so much FICO issues as behaviors the issuers evaluate when assessing accounts.

[haulingthescoreup]

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marty56 wrote:

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@haulingthescoreup wrote:
I wouldn't go get a loan just to make the FICO gods happy.

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Starting to quote DR, good.  I will watch his TV show waiting for your Plasectomy film.

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Dang, I thought I made that one up 2 years ago.

Nope, I love my plastic, and my plastic loves me! You and I are in a running competition to see who can be the more debt-allergic.

[marty56]

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@haulingthescoreup wrote:
Nope, I love my plastic, and my plastic loves me! You and I are in a running competition to see who can be the more debt-allergic.

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I actually had 2 CCCs report a abalance this month and came very close to revolving a small balance due to a major purchase and a few too many doctor vists and book purchases.  It would have been PIF'd next month though.

I wish I could find my old BofA card so I could make a plasectomy of it.  I have so many cool, painfull ideas for it to meet its maker but since I still like to use my other CC cards, it wouldnt be honest of me to send it to Dave.   I would send it to the CEO of BofA though in 2.5 years when my BofA derog falls off, assuming they are still in business.  A boy can dream though.