Paid Off CC Debt - Now What? (675=>750+ desired)

[Anonymous]

I recently paid all of my credit cards and other debt to $0 (statement balance). Currently, I have nearly $200K in student loan debt from undegrad and grad school that is in good standing, and an open car loan that is in good standing and only about 6 months old.

Over the past couple years I was in grad school and trying to switch industries, so I had a few rough spells where I was late on payments. I have several items with a few 30s, but nothing bigger, no charge offs and no collections.

Recently I finally got a great job making $100K+, so was able to pay everything off except the student loans and car. I have one credit card that has a $3K limit that I've left about $500 on and pay the minimum as others have advised. My score has gone from mid 500's to 650-672 depending on the bureau.

I'm looking at how I can improve my score further so that in about 6 months I can buy a home at a great rate. My goal is to be above 750 when I apply for financing. Given what I have shared, how should I manage my credit to show a strong, stable improvement in performance to earn that score?

Thank you for the time and any advice you have to share.

[Kree]

Along with your requested advice let me begin by saying, I would not suggest buying a house until you have 6 months salary saved up.

Drop the 500 down to 250.  This will maximize your utilization by reporting under 8.9%

Add a few more credit cards. 3 is considered the best starting number.   Out of curiosity how many student loans do you have?  I've got 14 myself for some reason, and it really helps my thickness.  I'm almost immune to AAoA drops due to new accounts.

[Anonymous]

Thanks for the advice!

As far as savings go, my wife inherited some money so we have that in savings / investments currently (making better than interest rates), so we should be good there.

I'll pay down that cc balance, good tip. I do have 2 Capital One credit cards and a high interest one I got to help with credit when I started crawling out of the worst of my career change / financial hardships. I'm thinking of adding another one with a more favorable interest rate and perks to be the one I carry a small balance on.

Regarding the student loans, I'm in the same boat. Every dispursment is its own loan for some reason, so it sounds like I'll be good to go on AAoA as well.

[HeavenOhio]

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@Anonymous wrote:

I have one credit card that has a $3K limit that I've left about $500 on and pay the minimum as others have advised.

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Never pay only the minimum unless circumstances force you to. Paying only the minimum over a period of too many months can cause lenders to take adverse action, such as a credit limit decrease or even card closure. And of course, there's interest to consider.

However, you're correct that one card should report a positive balance to the credit bureaus. But that balance should come from new charges rather than from carrying a previous balance.

If you want to optimize the utilization portion of your score, check out AZEO in ABCD2199's Eleven Rules thread. In your case, you're going to want to reset the grace period and make interest stop on the aforementioned card. I'd pay it to zero and allow a different card to report a positive balance.

[Anonymous]

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@Anonymous wrote:
 

I have one credit card that has a $3K limit that I've left about $500 on and pay the minimum as others have advised.

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I am sorry to hear that you have been advised to make only minimum payments on any credit card.  That is a bad idea.  Rather you should always strive to pay the amount that appears on the statement in full (pay in full or PIF).  There is no scoring benefit whatsoever from electing not to PIF.  Indeed, in future scoring models, consumers who have failed to regularly PIF may have their scores penalized.

[Anonymous]

Great - I misunderstood the point of having the balance, and how to manage. Thanks for the great resource!

I haven't paid any interest or minimums on the balance yet, so I'll pay it off and use it for gas - paying it off to $0 each month just after the balance is reported, but before interest is assessed (if I have understood this piece correctly).

One other thing I did not mention - the interest rate on my auto loan is pretty high because of my score when I made the purchase (13%). I want to refinance at a better rate and not pay so much in interest now that my score has improved, but I do not want to do so in a way that negatively impacts my credit vs simply paying with no lates on this existing loan. Would the refinance be adviseable, or do I just keep making that payment each month?

[Anonymous]

My comments in blue below.

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@Anonymous wrote:

Great - I misunderstood the point of having the balance, and how to manage. Thanks for the great resource!

I haven't paid any interest or minimums on the balance yet, so I'll pay it off and use it for gas - paying it off to $0 each month just after the balance is reported, but before interest is assessed (if I have understood this piece correctly).

You understand it perfectly. 

One other thing I did not mention - the interest rate on my auto loan is pretty high because of my score when I made the purchase (13%). I want to refinance at a better rate and not pay so much in interest now that my score has improved, but I do not want to do so in a way that negatively impacts my credit vs simply paying with no lates on this existing loan. Would the refinance be adviseable, or do I just keep making that payment each month?

Refinancing the car is fine, though I would implement AZEO on my cards first to try to squeeze every available extra FICO point out of my existing reports.

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I'd also head over to our Rebuilding forum to learn from the folks there some techniques for (possibly) getting your Day 30 lates removed.  Notably the technique of Goodwill Letter Saturation.

[SouthJamaica]

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@Anonymous wrote:

I recently paid all of my credit cards and other debt to $0 (statement balance). Currently, I have nearly $200K in student loan debt from undegrad and grad school that is in good standing, and an open car loan that is in good standing and only about 6 months old.

Over the past couple years I was in grad school and trying to switch industries, so I had a few rough spells where I was late on payments. I have several items with a few 30s, but nothing bigger, no charge offs and no collections.

Recently I finally got a great job making $100K+, so was able to pay everything off except the student loans and car. I have one credit card that has a $3K limit that I've left about $500 on and pay the minimum as others have advised. My score has gone from mid 500's to 650-672 depending on the bureau.

I'm looking at how I can improve my score further so that in about 6 months I can buy a home at a great rate. My goal is to be above 750 when I apply for financing. Given what I have shared, how should I manage my credit to show a strong, stable improvement in performance to earn that score?

Thank you for the time and any advice you have to share.

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1. There's no point in maintaining a $500 balance. Just let the card report a small balance, and pay it off right after the statement cuts. If all your credit card accounts are open, you should let one card report a small balance, and the others report a zero balance.

2.  As you pay the loans down, you'll pick up points in FICO 8 and 9, and to a lesser extent in your mortgage scores.

3. I don't know how to achieve a "great score" in 6 months.

[Anonymous]

I know there have been recommendations in this thead to both apply for additional credit cards as well as wait (longer than 6 months) before going for a mortgage.  If you however decide that you aren't going to wait longer than 6 months to go for your mortgage, don't apply for any credit cards today.  That would be a bad idea (seeking credit) so close to a mortgage loan app.

The single best thing you can do to improve your score is to get those 30 day lates removed.  However many you have, get rid of them.  Since they are of the weakest severity, they may be of the easiest to get removed, since they are minor hiccups.  If you can take your dirty file to a clean one, chances are your score will immediately land right around where you want it to (say, mid 700's).  Anything else you do, such as paying down utilization and simply waiting will help no doubt, but not nearly to the degree that going from a dirty to a clean file will. 

[jamie123]

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@Anonymous wrote:

I know there have been recommendations in this thead to both apply for additional credit cards as well as wait (longer than 6 months) before going for a mortgage.  If you however decide that you aren't going to wait longer than 6 months to go for your mortgage, don't apply for any credit cards today.  That would be a bad idea (seeking credit) so close to a mortgage loan app.

The single best thing you can do to improve your score is to get those 30 day lates removed.  However many you have, get rid of them.  Since they are of the weakest severity, they may be of the easiest to get removed, since they are minor hiccups.  If you can take your dirty file to a clean one, chances are your score will immediately land right around where you want it to (say, mid 700's).  Anything else you do, such as paying down utilization and simply waiting will help no doubt, but not nearly to the degree that going from a dirty to a clean file will. 

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BBS hit the nail on the head.

You will not be able to raise your scores to the mid-700s in 6 months unless you are able to remove ALL the 30 day lates from your reports. You will pick-up the most points when the very last 30 day late is removed leaving you with a clean report. If you haven't tried to have these removed by writing GW (Good Will) letters to the lenders it is definitely worth a shot. It takes 7 years for these lates to fall off by themselves which is quite a long time.

So...You have a decision to make...

If you plan on buying a house in 6 months regardless of what your score is, don't apply for new credit now but just groom the credit that you do have. Adding new credit right now might actually reduce your score for the next 6 months and lenders like seeing a quiet period where no new credit has been added in the last year before a mortgage app.

If you can push your mortgage app date out to 1 year from now you can get a couple of new credit cards that would boost your scores and thicken your credit file by the time a year is up.