Individual Account Utilization and number of accounts Thresholds

[Macroman]

I received the following comments on my recent reports.

Experian FAKO:

At least 1 or more of your accounts has a balance that is close to your credit limit, which may be lowering your score. When your balance is high, this can indicate to lenders that you are likely to overextend yourself.

Equifax FICO:

Your FICO score was hurt because you are carrying balances on too many credit cards at once. 

Can anyone tell me what the thresholds are for reporting these derogatories? I am working hard to reduceutilization and pay off all the cards but do have a heavy CC debt load. I am anticapting 100% payoff in about two years. I am  wondering if there is anything in this report advice that should modify the usual dictum of paying off the highest interest rate first.

Message Edited by Macroman on 08-08-2009 08:02 AM

[smallfry]

FICO only. The conventional wisdom is to never let more than 40% of your total number of open accounts report with a balance.

[cobaltnv]

The answer to this question depends on what your goal are. If your goal is to pay off your debt as fast as possible for as little $$ as possible then pay highest interest first. If you are trying to raise your Fico score quickly to get approved for a mortgage, car loan, etc then the advice might change. If you post the amount owed, CL, and interest rates for your cards you will get much more advice from the posters here outlining your various options.

Good Luck 

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@Macroman wrote:

I am  wondering if there is anything in this report advice that should modify the usual dictum of paying off the highest interest rate first.

[Macroman]

Issuer             CL                  BAL             INT

Discover         6400              1330             28.9

Citi                 3980              2990             27.24

Chase              500                    0             27.24

AT&T Univ       6610              6308             24.99

Target             1800              1650             23.9

Capitol One     3300              3100             20.9          

US BANK       3000              2700              20.9   

Capitol One     3000              2750             19.9

Chase            closed            2150              24.9

Chase            closed            1530              20.9

CU card         1500               1250              12.9       

Store cards

Dell FS           4000              1015              16.9

Kohls              1000                  0     

Wal-Mart         500                 281              19.9

I also recently PIF HSBC-Direct Merchants Bank which was charging 30.9 interest. After payoff I was able to get them to reduce the rate to 21.9 puch- 27.9 CA.

I'm currently able to put 300-500/mo over min pmt to debt reduction. Also I get a boost from a bonus from work in March and tax refund. Payoff is my primary concern but I don't mind a boost from lower rates. I just took a 401K loan for 7600 to speed up the program. I couldn't see paying 31% against assets that would only make that in a very good year.

So immediately my question is it worthwhile to munch off the lower interest Wal-Mart card balance or continue paying on the higher interest cards. Also do you think more favorable terms would be available on a BT? I trust HSBC with a BT about as far as I could throw their building.

Another question is if there is a difference in scoring for 92% vs 88% util on a LOC. It's only recently that I've been able to make significant progress on util. My balances at beginning of 2008 were about 43,000 and the next statement balances will be about 27,600. Reported util was 76% and should bein upper 50's once the 401K boost settles out.

Scores:  

FICO   EQ-680 7/12   TU-715 5/14

FAKO: 8/1 EX-703 TU-708 EQ-703 

Thanks for any assistance in advance.

Message Edited by Macroman on 08-08-2009 09:25 AM

[cobaltnv]

Wow--you have some astronomical interest rates!  I forget if you mentioned this or not--are your credit reports clean (that is no lates CO etc)?  

So if I read your post correctly you have ~$8k to throw at this at the moment? 

If that is correct I suggest the following:

Pay off the Discover (1330); Citi (2990); and the two closed chase accounts (2150 and 1530).

I would then call Discover and citi to see it they have any  low interest balance transfers available.  I would also start calling companies to see if you can negotiate lower interest rates. You might wait until afte some of the recent payments post as your scores will be much higher.  With the AT&T card I would even consider allowing them to close the card if they will give you a much lower interest rate. 

You can will will get out of this! Keep in mind that you should stop using your cards as you are paying down the balances. 

[Macroman]

I could have been more clear.

I used the 8000 to bring me down to the balances I posted, paying down Discover and paying off HSBC and a small slice of the CITI balance.

Some of what I need to  is wait for the reduced balances to work their way onto the report.Experian FAKO is reflecting the lower Discover balance but reductions on the CITI and HSBC don't show up yet.

One thing I thought I might try is pay somewhat over the min on the CITI card and see if I can fool them into thinking they are the highest int card. They have reduced rates this way before. Of course in a matter of 4 months at most they will be the highest rate card unless they lower it.

I have already called CITI and Discover once I think I will wait a little before calling again, at least until all the reports reflect current balances.

I have put all the 20+ cards and Wal-Mart in the drawer and they won't be coming out. I'm very careful what I charge now but I do feel that the indirect balance transfer (charge something on the low rate card while paying all-out on the high rate cards) is viable as long as you can trust your low rate card and stay under CL. Thank goodness for my CU they have been very good to me.

AT&T is managed by CITI so next time I call them I will suggest that tradeoff. They suggested something like that a couple years ago but the minium payment was more than I could manage at the time.

I forgot you asked about derogs, almost clean. One card has a 30-day late almost 7 yrs old. No mortgage or car pmt and none planned until I get to 100% payoff.

Thanks, cobaltnv!

Message Edited by Macroman on 08-08-2009 01:22 PM

[cobaltnv]

THanks for the clarification. I would definitely get the discover and citi paid off as quick as possible--they are the cards most likely to give you a good BT rate (and are your most prime cards). Keep calling you might get lucky and get a lower rate!

Good luck 

[Anonymous]

Macroman, I'd like to offer a bit different perspective from the traditional paydown of high interest balances.

Paying down your high interest balances is fine if all your minimum payments are the same.  BUT, from a cashflow standpoint, you may be better off paying off lower interest rate cards IF they require a higher monthly minimum payment.  Say 5% of balance, rather than 2% of balance.

The best way I can explain it is that the effective interest rate on a 20% card with a 5% minimum monthly payment MIGHT be higher than a 25% card with a 2% minimum payment.  What I did was calculate my monthly payments as a percentage of the balance owed for each card.  Then, close the highest percentages first.

Just a different perspective.  In no way do I think paying off highest rate cards is wrong.  I just think that from a cashflow standpoint, you might also consider my alternative.

[smallfry]

I was a believer in the 40% of open accounts reporting a balance threshold until I pulled my FICO's last week. Due to the time of month the scores were pulled and the fact that a closed BofA card reported a small balance I had 4 accounts out of 7 (6 actually open) reporting with a balance. No score change. I won't make it a habit though.

[Macroman]

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@Anonymous wrote:

Macroman, I'd like to offer a bit different perspective from the traditional paydown of high interest balances.

Paying down your high interest balances is fine if all your minimum payments are the same.  BUT, from a cashflow standpoint, you may be better off paying off lower interest rate cards IF they require a higher monthly minimum payment.  Say 5% of balance, rather than 2% of balance.

The best way I can explain it is that the effective interest rate on a 20% card with a 5% minimum monthly payment MIGHT be higher than a 25% card with a 2% minimum payment.  What I did was calculate my monthly payments as a percentage of the balance owed for each card.  Then, close the highest percentages first.

Just a different perspective.  In no way do I think paying off highest rate cards is wrong.  I just think that from a cashflow standpoint, you might also consider my alternative.

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I was curious on the effect of this strategy. I ran two spreadsheets based on starting out with a balance of $1000 on each account and paying the initial minimum $70/month until payoff, first paying the higher interest first and minimum on the other and then paying the higher min first.

Paying higher min first takes 3 years and 6 months while paying the higher interest first takes 3 years and 4 months. It's interesting that the chosen minimum due does not cover the interest on the 25% card.

I guess this is close enough to choose either side, but I have a hard time paying more than the minimum on the low interest card in this situation.

Message Edited by Macroman on 08-13-2009 05:01 PM