Impact to FICO scores due to full account balance(s) Payoff

[Bonaccan]

Hello community-

I'm about to receive a Home Equity Loan to to payoff an existing HELOC and 7 credits cards (high interest rate). 

I will be receiving multiple checks to payoff each account in full. I had hoped to receive one check to payoff the HELOC and then gradually payoff the credit cards to avoid shock to scores due to full payoffs.

What should I expect in terms of negative impact to scores which are 693, 689 & 685?

[GreatLife]

Negative impact will be if you don't pay off the cards. Otherwise CR's will factor both the new loan and card utilizations. Pay cards in full, then put a small charge on one of the revolvers.. maybe a pump tank of gas or pay a utility bill.

[SouthJamaica]

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@Bonaccan wrote:

Hello community-

I'm about to receive a Home Equity Loan to to payoff an existing HELOC and 7 credits cards (high interest rate). 

I will be receiving multiple checks to payoff each account in full. I had hoped to receive one check to payoff the HELOC and then gradually payoff the credit cards to avoid shock to scores due to full payoffs.

What should I expect in terms of negative impact to scores which are 693, 689 & 685?

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I don't know why there would be a negative impact. More likely there will be a positive impact.

[FlaDude]

The other responses are spot on.

The only negative from paying credit card balances would be if every card you have reports a zero balance. Even then, the all zero penalty is likely less than the penalty for having larger balances or more cards reporting balances. Search the forum for the AZEO (all zero except one) strategy.

[Snook_on_the_Line]

I agree that you should pay all the credit cards in full.    

paying them down in chunks could lead to balance chasing if you have high balances across multiple cards.    

[Thomas_Thumb]

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@Bonaccan wrote:

Hello community-

I'm about to receive a Home Equity Loan to to payoff an existing HELOC and 7 credits cards (high interest rate). 

I will be receiving multiple checks to payoff each account in full. I had hoped to receive one check to payoff the HELOC and then gradually payoff the credit cards to avoid shock to scores due to full payoffs.

What should I expect in terms of negative impact to scores which are 693, 689 & 685?

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Just get er done and pay off all the cards to get rid of balances with high APRs. After that pay all balances before their due dates to avoid future high interest carry over penalties.

Your scores should improve significantly if reported card utilizations are kept below 29% and aggregate utilization is below 9%.

[Snook_on_the_Line]

And remember that when paying off balances that are currently accumulating interest that there may be a balance the next month even if you pay 'in full'.  

this is due to the interest that continues to accumulate in the time between the payment being made and the payment posting. 

google credit card trailing interest.  

by my calculations a 10k balance at 30%apr could rack up about $60 in trailing interest if the payment takes 5 business days to post

(30%\365=daily rate, balance x daily rate compounded over 7 calendar days= ~$60)

[Horseshoez]

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@FlaDude wrote:

The other responses are spot on.

The only negative from paying credit card balances would be if every card you have reports a zero balance. Even then, the all zero penalty is likely less than the penalty for having larger balances or more cards reporting balances. Search the forum for the AZEO (all zero except one) strategy.

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You make a great point, if the OP pays all of the balances in full, then the All-Zero penalty is likely to kick in and cost 20(ish) points.  A better pland would be to pay all of the cards down to or near zero; leave a few with trivial balances for reporting purposes.

[Pppoolboy]

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@Bonaccan wrote:

I will be receiving multiple checks to payoff each account in full. I had hoped to receive one check to payoff the HELOC and then gradually payoff the credit cards to avoid shock to scores due to full payoffs.

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Is there any reason you particularly care about what your score will be after payoff?  Will you be applying for a new loan within the next couple of months afterward?

[Bonaccan]

I thought about this after I posted it but I will not be applying for any new loans in the next couple years. By then I would expect my scores to be in better shape to look at options to absorb this new loan which is primarily to finally get rid of the high interest credit cards!