How to look more favorable to creditors...and how is this affecting my score?

[angie204]

I have about $50k in student debt.  It is currently in deferrment, and therefore I am not making any progress on my balance.  I also have two car loans and an unsecured line of credit, all of which I am making payments on and are around 18 months old.

I was denied credit at Macy's due to "outside accounts" and "too high utilization on existing accounts," and then Home Depot said the same thing.  I tried a recon for both, both denied. The Home Depot representative said that my utilization is reporting at over 90%.  I told them that was impossible, as I have no other revolving credit.  The rep of course then said they don't have specifics.  The entire reason I was even applying is to improve my score.

So...I used my denial to get a free copy of my experian report.  My report shows that my revolving credit has a zero balance and $5k limit...but that my installment debt is $72k, with 96% utilization.  I'm guessing that the highest balance on the installment debt minus the amount paid to date are resulting in the 96%. 

I am currently putting $500 a month into savings so that I have a cushion.  Once I have reached that goal, then I'd like to put that $500 a month into paying off other bills.  My first thought was to use that money to pay off the smaller car loan ($2200 owed) and the unsecured line ($4600 owed), then use the freed up payments to pay off the big car loan ($15000 owed).  Not to mention, part of the interest on the student loans is being paid by the government as I'm still going to school part time, so the student loan debt is "cheaper."

However, if I pay those installments off, then the accounts become closed, which will actually increase my utilization because my student loan balances are not being touched, right?  Then again, my debt would likely be paid much faster if I stuck to my original plan.

So does this come down to wanting to pay off debt versus having a "good" score?  I don't plan any major purchases in the next two years.

[JoeBJay20]

In terms of credit scoring, utilization only refers to credit card utilization.  But you are correct in that you do also have installment utilization, but that is separate from credit card utilization and does not factor heavily into your credit scoring.  Keep two things in mind.  First, your credit score is only one aspect of your creditworthiness.  Two, each individual creditor has its own credit standards.  Some creditors will deny you if you have high utilization in installment loans, even if you have very low utilization on credit cards.  But stick with the plan that you currently have, save a minimum of 3 months' worth of salary (perhaps even as much as 6 months in this economy) before diverting extra income to pay down debt.  Don't expect large credit score jumps when your installment utilization drops as is typically seen with credit card utilization. 

[angie204]

Ok, thanks....that makes sense. 

I will stick with my original plan and just pay off the higher interest rate accounts first.