Question RE: FICO and util

[5oClockSomewhere]

I had been excited by seeing the FAKO updates on my credit report service, but then today paid for my real FICO scores and the one is significantly lower (40 points) than the FICO.  From what I can tell, I think it's because the reporting services uses my open credit card account balances to come up with my score, but it looks like FICO uses all of my credit balance (including closed) to come up with my util.

DH and I are currently able to "save" $1500/month toward a downpayment on a house.  After this awakening, I'm wondering if I should use some of that down payment $$ to pay down a credit card big time.  As it stands, I have one CC OPEN, that's reporting a util of 89% (yes, I'm working on paying it down).  I have 2 additional cards that are ugly, and are currently closed (one is reporting closed by the grantor, other says closed by me) but the one is so ugly (but my longest account) that my limit on that card was $700, but the current balance is like $2,000, so according to FICO scoring my util is like 167%.

Soooo, what would get me the biggest bang for my buck?  Taking a large chunk of money and paying down the current, open credit card (it's got $1,000 limit, bal is like $700 after a recent payment).  Or should I take a large chunk of money and pay down the closed, super over-the-limit credit card?

I'm getting to the point on both our credit reports that I'm running out of things to fix, or delete.. and am looking for ways to get both of our mid-scores to be good for mortgage financing.  Thanks!

[llecs]

I'd pay down the CC debt. It will lower your DTI and increase your scores, thus improving your odds for a new mortgage. Also note that closed CCs w/ a balance still factor into your FICO. Once you pay it to $0, the CL and the balance are removed from scoring. Make sure your opened CC balances and util are in check. Congrats on the savings, BTW!

[5oClockSomewhere]

Thanks--the savings is trying to get us used to having a mortgage payment that amount.  The problem is I almost feel guilty saving any money when there are still so many bad things that we could pay off.  It's not that I'm ignoring anything, and my intention is to pay all all the bad stuff eventually, but for now I'm looking to get my credit just good enough to qualify for a modest home.

Which do you think would show more of a score increase?  Paying down a credit card that's open, or paying down a credit card that's closed?  Or does it not matter with FICO?

[Jazzzy]

---

@5oClockSomewhere wrote:

Thanks--the savings is trying to get us used to having a mortgage payment that amount.  The problem is I almost feel guilty saving any money when there are still so many bad things that we could pay off.  It's not that I'm ignoring anything, and my intention is to pay all all the bad stuff eventually, but for now I'm looking to get my credit just good enough to qualify for a modest home.

Which do you think would show more of a score increase?  Paying down a credit card that's open, or paying down a credit card that's closed?  Or does it not matter with FICO?

---

You will eventually have to pay all of them off. I would probably pay off the open accounts first because that preserves the credit limits on your closed accounts to help with your utility. If you won't be applying for anything anytime soon, however, then just start by paying your highest interest rate cards first.

The closed ones have to be paid as well, however...and...I need to ask....what interest rates are you paying on those closed cards? My guess is that they are very high rates.

If it was me? I'd be paying all the credit cards off before I tried to put away $1,500 a  month. Make sure you have some money as an emergency fund...but then get them paid off. It's tough to get ahead if you're paying 20%+ interest. You're making practically nothing on the money you're saving. Think about it this way...I know you want to develop the habit of saving $1,500/mo. Most people, however, have to decide between saving and spending. Your decision seems to be between saving and paying your bills. In that case...I think paying your bills wins. Maybe you're not quite ready to be saving $1,500/mo.

Also, getting that utility to near zero is where you will see the biggest jump in your FICO scores. Putting $1,500 monthly in the bank isn't going to add even one point to your scores. Your credit picture would look pretty dismal to a loan officer right now, and you need to fix that before you apply.

Good luck...

[5oClockSomewhere]

Thanks for the response.  My open card currently has a 0.0% interest through May '10, and I recently negotiated an 8% interest rate on the card that's closed.  I will take a couple month's worth of "saving" and just pay down those credit cards.