How will paying off my entire $60K in debt impact my goal of a perfect score?

[Anonymous]

The bad news is I am in debt to nine different credit cards $60,000.  The good news is the house has sold and I will get a $120K profit from the sale.  So in about a month I will be able to completely pay off my credit card debt and owe absolutely nothing on my credit cards.  I will owe nothing to any other creditor after that too.

Here is my question:  My FICO score is average due to the fact that I have always paid my credit card bills on time but mostly only the minimum payment.  I have had at least 40K owed on a variety of credit cards for at least 4 years. My FICO score is only average because I owe about 75% of my available credit.  So my utilization rate is bad.

So when I COMPLETELY pay off my credit cards next month will be credit score be really high? Or will my FICO score be impacted for a while because of my long history of excessive debt and years of minimum payments?

On the good side:

*   I have had credit cards for over 20 years.  Most of the cards I have now I have had for over ten years minimum

*   Always paid them on time, never late

*  I have a history of high balances that will have been paid off completely without any late payments

*   I have had a car payment and a mortage in the past that were always paid on time

So, what is going to happen to my credir rating after I pay off all my credit cards?  After I pay off my debt all at once you would thnk I would then have a perfect credit score.  OR NOT?

[IOBA]

A perfect credit score is elusive....but after you pay off all of your debt and the companies update, you will look great as a credit risk!

Don't forget to use your cards once in a while.  Enjoy the debt free life.   And yes, your credit score will be going up!

[Anonymous]

The OP again:

Maybe I was not clear in my orginal posting.  My goal is not figuring out how to get the perfect score but to understand this question:

If I have a long history of high balances and minimum payments (over four years of at least $40,000 in debt) but next month I completely pay off my credit cards and have a zero balance on everything, will my long recent history of high debt on multiple cards and minimum payments hurt my FICO score AFTER I pay off all my debt?

I would think creditors and the credit reporting agencies could look at my situation in two ways AFTER I PAY OFF ALL MY DEBT::

1)  Great, she has now paid off all her debt.  She has a long history with credit, always paid her credit card bills on time, handled high debt and now owes nothing.  She deserves a really high FICO score.

or

2)  Yes she has recently paid off all her debt but she has a history of charging up her credit cards almost to the max and then sending in minimum payments for years.  It is likelyshe will do this again and again.  Her history of high debt on muliple credit cards should limit her FICO score in the future even though she owes nothing now.

[MarineVietVet]

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@Anonymous wrote:

The bad news is I am in debt to nine different credit cards $60,000.  The good news is the house has sold and I will get a $120K profit from the sale.  So in about a month I will be able to completely pay off my credit card debt and owe absolutely nothing on my credit cards.  I will owe nothing to any other creditor after that too.

Here is my question:  My FICO score is average due to the fact that I have always paid my credit card bills on time but mostly only the minimum payment.  I have had at least 40K owed on a variety of credit cards for at least 4 years. My FICO score is only average because I owe about 75% of my available credit.  So my utilization rate is bad.

So when I COMPLETELY pay off my credit cards next month will be credit score be really high? Or will my FICO score be impacted for a while because of my long history of excessive debt and years of minimum payments?

On the good side:

*   I have had credit cards for over 20 years.  Most of the cards I have now I have had for over ten years minimum

*   Always paid them on time, never late

*  I have a history of high balances that will have been paid off completely without any late payments

*   I have had a car payment and a mortage in the past that were always paid on time

So, what is going to happen to my credir rating after I pay off all my credit cards?  After I pay off my debt all at once you would thnk I would then have a perfect credit score.  OR NOT?

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Hello and welcome to myFICO.

First off a great BIG congratulations on paying off all that CC debt. I know the feeling and there's nothing quite like it.

Scoring really has no memory and once those balances come down that is what is seen and scored. Exactly what kind of boost you might get is very difficult to predict because we all have different credit profiles.

May I ask what your scores are at this time and when is the last time you checked your FICO scores? You notice I underlined FICO bcause many, many companies will sell you a "credit score" but that "score" is not used by the vast majority of lenders.

No one has been able to buy their own Experian FICO score since February of 2009. Creditors can pull Experian and also there is a CU (PSECU) in Pennsylvania that supplies that information to it's members only. You can only buy true FICO scores at a few places. One place is here at myFICO. I suggest you do an internet search for "myfico discount codes" to save a little money.

You can also purchase your Transunion score at www.transunioncs.com. At www.equifax.com EQ will still sell you an EQ FICO score but they make it pretty hard to find.

From a BK years ago to:
EX - 9/09 pulled by lender 802, EQ - 10/10-813, TU - 10/10-774

"Some people spend an entire lifetime wondering if they've made a difference. The Marines don't have that problem".

[Anonymous]

The last poster stated:   "Scoring really has no memory and once those balances come down that is what is seen and scored."

That is interesting but seems illogical and maybe not true.  I would expect that part of a person's credit rating would be how much debt they handled in the past and how big their payments were towards that debt.  I view it as a negative that I used nine credit cards and charged them up to nearly the max and paid only the minimum payments for years and years.  Even though all my debt will be paid off next month from proceeds from a house sale I don't think someone like me deserves a high credit rating or FICO score because I used credit poorly in the past.  (Even though I have a perfect payment history) Agree?

[chasmith]

Scoringf is indeed illogical.  Fair Isaac developed a method of using various "markers" to generate a score, and it's based on your credit file at the time the score is generated.  That's the fact.  The score is said to predict the likelihood that you will default on a debt within the next two years, period.  It doesn't judge you as a person.

You will actually benefit from having nine relatively old accounts, now all at zero balance.  Even though you feel you used credit poorly in the past, you never defaulted or missed a payment, so now with no debt the chances you will default in the next two years seem slim, and you should be scored high.

[haulingthescoreup]

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@Anonymous wrote:

The last poster stated:   "Scoring really has no memory and once those balances come down that is what is seen and scored."

That is interesting but seems illogical and maybe not true.  I would expect that part of a person's credit rating would be how much debt they handled in the past and how big their payments were towards that debt.  I view it as a negative that I used nine credit cards and charged them up to nearly the max and paid only the minimum payments for years and years.  Even though all my debt will be paid off next month from proceeds from a house sale I don't think someone like me deserves a high credit rating or FICO score because I used credit poorly in the past.  (Even though I have a perfect payment history) Agree?

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Disagree!

FICO scoring attempts to predict the risk that you will default in the future. Despite having to carry balances for a while, you were always timely with your payments.

Had you pulled your scores back when you had high balances, your scores would have been lower, indicating that yes, you were a higher risk back then, although you had no lates.

Once your balances are at or near $0, you will be much less of a risk for default on your credit, so your scores will be higher.

If you run your balances up again, your scores will then drop, because at that point, you will be riskier once again, again even though you have no lates.

FICO scores are looking at where you are right now with any current debt, plus where you've been in the past 7-10 years with any actual (not potential) problems, such as lates, collections, liens, BK's and so forth.

Your full credit reports that are available to lenders do indicate your past balances (look at a full Experian report, for example), and so lenders might decide that you're riskier because you had balances in the past. Lender decisions are different from FICO scoring.

Also, that fact that you had CC debt in the past doesn't indicate why you had that debt. You might have had killer 0% deals and transferred over auto loan debt and student loan debt and even some mortgage debt, using the 0% rates to pay down total debt more quickly. I'm sure that looks far-fetched to you, but we've had members do this sort of thing.