Newbie and new college grad trying to take control .. help?

[Anonymous]

Hello everyone, first post on the boards, and frankly a little hesitant to post my situation after being intimidated by some of the content and "stats" (scores) on members I've seen here .. but hoped there may be some folks out there that can help point me in the right direction.

Quick background without boring you all, messed around in undergrad and did lots of slacking off with that infamous "yolo" attitude in my early 20's. Let things get out of hand. Finally got my act together and have now just graduated from grad school and started working. Making an "ok" salary (~100k/yr) but student loan repayments kick in in 6 months so hoping to get my debt situation under control before that happens.

Additionally, in early 2009 I enrolled (and got scammed) on a debt consolidation scheme where 2 accounts (an old capital one card, and music store card) both went to collections and I was forced to settle the balances, which now show as a "write off" on my report. My score was in the low 500's at this point.  By using an Orchard Bank and secured capital one card I was able to get my score where it's at now, to the 650 range for all 3 reporting companies.

I currently have the following:

paypal mastercard - 1550 (3700 limit)

expedia CITI - 2800 (3000 limit)

capital one - 2500 (2750 limit)

best buy - 0 (1000 limit)

chase slate - 0 (300 limit)

chase amazon - 1800 (3000 limit)

jared - 2200 (7000 limit)

gap - 0 (1700 limit)

james allen - 2700 (3700 limit)

auto loan - 23400 balance - about 4 yrs left (original 5 yr loan)

I realize my balances are very high compared to available credit, and have been trying to use the snowball method to get these cards paid off, but everytime I've paid off a card (espcially the store cards with high interest) my score seems to keep going down. I have thought to pay off and close out my newest cards (best buy, expedia both from late 2014) so that my average history will increase but this all seems so counter intuitive that I'm not sure thats a good move.

The paypal card should be paid off by the end of next month, and should have 5-6K to throw at the rest within the next month or two.

Any advice on how to best handle this so that my score doesn't keep going down from paying these cards off? I also hoped to pay off my car by the end of 2016, bad move?  I always thought it was best to have everything at $0.. apparently I have more reading to do.

Lastly, regarding the write-off from 2009, does that go away automatically in 2016 or do I need to hire someone to fix that for me?

I'm sorry for the barrage of questions, but I really appreciate any input from the community. Thanks in advance.

Score as of today:  EQ 631 Trans 664 EX 624 (down from a 660-670 average for these after I started paying things off..)

[Anonymous]

Congrats for working so hard on this and on the sweet job!  My comments in blue below.

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@Anonymous wrote:

Hello everyone, first post on the boards, and frankly a little hesitant to post my situation after being intimidated by some of the content and "stats" (scores) on members I've seen here .. but hoped there may be some folks out there that can help point me in the right direction.

Quick background without boring you all, messed around in undergrad and did lots of slacking off with that infamous "yolo" attitude in my early 20's. Let things get out of hand. Finally got my act together and have now just graduated from grad school and started working. Making an "ok" salary (~100k/yr) but student loan repayments kick in in 6 months so hoping to get my debt situation under control before that happens.

Additionally, in early 2009 I enrolled (and got scammed) on a debt consolidation scheme where 2 accounts (an old capital one card, and music store card) both went to collections and I was forced to settle the balances, which now show as a "write off" on my report. My score was in the low 500's at this point.  By using an Orchard Bank and secured capital one card I was able to get my score where it's at now, to the 650 range for all 3 reporting companies.

I currently have the following:

paypal mastercard - 1550 (3700 limit)

expedia CITI - 2800 (3000 limit)

capital one - 2500 (2750 limit)

best buy - 0 (1000 limit)

chase slate - 0 (300 limit)

chase amazon - 1800 (3000 limit)

jared - 2200 (7000 limit)

gap - 0 (1700 limit)

james allen - 2700 (3700 limit)

auto loan - 23400 balance - about 4 yrs left (original 5 yr loan)

I realize my balances are very high compared to available credit, and have been trying to use the snowball method to get these cards paid off, but everytime I've paid off a card (espcially the store cards with high interest) my score seems to keep going down. I have thought to pay off and close out my newest cards (best buy, expedia both from late 2014) so that my average history will increase but this all seems so counter intuitive that I'm not sure thats a good move.

By "average history" you probably mean Average Age of Accounts.  If so, you are mistaken: closing accounts will not increase (or otherwise affect) your AAoA.  Closed accounts continue to contribute to AAoA just as much as open ones do (until they fall off your report ten years later).  On the other hand, some people want their profile to consist more of major cards than store cards, and if that's important to you then you could close one or two store cards if they are cards you don't really like anyway.  Just wait till you have paid off all your cards before you start closing stuff, so that you can benefit from their credit limit while you still have substantial balances.

The paypal card should be paid off by the end of next month, and should have 5-6K to throw at the rest within the next month or two.

Any advice on how to best handle this so that my score doesn't keep going down from paying these cards off?

Not sure why you would be experiencing score drop from paying cards off.  It's possible that it might be a weird artifact of having other cards that are almost maxed out.  FICO can treat some profiles differently than others.  Regardless, I would just stay the course and continue to do what you are doing, which is your plan of paying off all your cards.  You might try paying down a couple cards that are almost maxed out and that will probably help you a lot.

I also hoped to pay off my car by the end of 2016, bad move?  I always thought it was best to have everything at $0.. apparently I have more reading to do.

Paying off your car loan will hurt your score a bit, if that means you will have no open installment loans.  But there are other things to consider, notably whether you feel you might be paying a lot of interest on it.  Some lenders are willing to let you pay off a lot of the capital in a big lump sum and then recalculate your monthly payment.  (My credit union has done that with a couple auto loans I had with them.)  If you can arrange a solution where most of the principal is paid off you will then be paying little interest and it will help your profile to have a nice installment loan that has lasted at least 3 years.

As far as whether it is "best to have everything at $0" -- not exactly.  FICO likes you to have an open installment loan.  There's ways of doing that pretty painlessly.  FICO also doesn't like it when ALL of your cards report at $0.  You need to have one that reports a positive balance to avaoid being spanked for being all zero.  But that doesn't mean you can't pay them all off (you should) -- just that at least one should report a balance.  As long you are using a few cards a little bit that happens naturally.

Lastly, regarding the write-off from 2009, does that go away automatically in 2016 or do I need to hire someone to fix that for me?

The CC charge off will go away at the 7-year mark.  No need to hire anyone.  Is this the only negative stuff on your report?

I'm sorry for the barrage of questions, but I really appreciate any input from the community. Thanks in advance.

Score as of today:  EQ 631 Trans 664 EX 624 (down from a 660-670 average for these after I started paying things off..)

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[Anonymous]

Thanks for you reply! Yes the 2 derogatory/write off accounts are the only "bad" things on my report. Everything else shows "paid off as agreed" or is currently open. I'm starting to understand the impact of each one of these things on my score more as I read more posts through these forums, but I suppose like you said, it's best if I just pay everything off and then worry about "tweeking" my score with some of the tricks I've read on here. Thanks again

[Anonymous]

Very welcome, bud.  Some takeaway action items to consider for the next 18 months, all of which you have identified yourself:

*  Keep learning about how credit works.  Get to know your credit reports particularly.  They need to become like old friends -- which means you are allowed to not always like everything about them, but they are important to you, you hang out with them a lot, and you know them really well.  Learn how the FICO algorithms work: there's lots of "big picture" websites out there that explain this in broad strokes.  Use a variety of (reliable) sources.  If you want a free website that gives frequent pulls of your TU and EQ reports, take a look at Credit Karma.

*  Pay off your credit cards completely and plan after that to always PIF (pay in full). 

*  At some point in 2016, after the cards get paid off, talk with your auto lender and see whether there's a way you can keep the loan open, same date opened, but pay off most of the principle, with the goal of keeping it open for the same length of time as you would have originally.  (48 months or whatever it was)  This way you can benefit from having a nice installment loan with a fair history and yet reduce sharply the amount of interest you pay.

*  Find out the date when (in theory) the derogs are supposed to fall off.  Watch your reports for that.  When the reports tell you that it is gone, pull your FICO scores again.  By that time you will be negative-free with low CC utilization and a car loan that (see above) is mostly paid off.  In short, much better scores.

One last thought:

*  Consider very hard the next time you feel the urge to open another credit card.  You have got PLENTY.  If your primary concern is getting a better score, the best thing you can do is let your existing accounts age and not open more cards for a good while.  On the other hand, you might choose (after everything else is taken care of) to work on extending your credit limits on some of your major cards (as long as you have moved into always paying in full -- in short, extend the limits only if you can see you aren't needing them!).  And there's nothing wrong with (again, way down the road) doing some careful research and applying for a rewards card that you can see will benefit you a lot.  Just remember that CCC's offer rewards cards for a reason, and it's not because they are philanthropies.  Rewards cards are designed to induce you to spend more money (so that you can "earn" more rewards).  They do this very effectively.  For the general population, rewards cards hurt them more than they help them.