Sanity Check - Credit Utilization Thresholds

[seanf12]

Apologize in advance for the long post, but was hoping I could get a sanity check on plan of action.  My goal is to raise my mortgage FICO scores (so FICO 2, FICO 4, etc) in order to qualify for an FHA or conventional in the next 3-4 months, and from what I have been told by a couple of local lenders, I would need at least a 620, but a 640 would be even better.  A lender I spoke with offered up a plan to raise my Experian FICO 2 score via the CreditXpert tool (which I know these tools are suspect at best) to a 620 (which involved paying $3200 towards these debts), but for some reason she keeps telling me it won't tell her how to get to a 640.  

In terms of baddies on my report:

I have two CAs on my report, one is settled and closed, the other will be settled and closed on Friday (both to show a $0 balance). 

I also have a CO from Jan 2019 that shows as closed, but a balance of $1100.  It hasn't reported in two years

I have 3 x 30 day late payments from Jan 2019 as well

My current utilization situation:

Experian FICO 2 - 592

Transunion Fico 4 - 602

Equifax FICO 5 - 574

Revolving Debt - Aggregate utilization is 89%:

Mercury card - $4696 balance, $4500 limit

Capital One - $3977 balance, $4000 limit

Merrick Bank - $1727 balance, $1800 limit

Walmart - $1437 balance, $1500 limit

Credit One - $1254 balance, $1500 limit

Merrick - $1157 balance, $1200 limit

Best Buy - $567 balance, $750 limit

Capital one - $559 balance, $1300 limit

Milestone - $0 balance, $300 limit

target card - $0 balance,  $900 limit

Macy - $0 balance, $1100 limit

Ascend Unsecured Credit Line - $16800 balance, $17000 limit

I read through the Birdman sticky thread around credit utilization thresholds, and if my math is correct, if I pay $8000 towards the above debts (in order to attempt to get to a 640), I should cross the 68.99 threshold, which is two thresholds below where I am now.  Am I understanding this correctly?  If so, does it matter which cards\credit line I place the $8000 towards?  is it even worth it in terms of the expected bump in score, or chances are that still won't be enough to get to a 640?

Thanks in advance for your help!

[CGeorge]

If my "back of the envelope" math is correct, your current total available credit is $33,750. In order to raise your score, you need to owe no more than 30% of that. So, in order to pay this down, in order, to increase your score, you need to pay off $23,625 of this. Even if your were able to pay your debt down to this point - unfortunately, the Collection Agency and the Charge Offs will remain on your credit report for a set number of years. What is the timing of the the two CAs? I wish that it were a "magic" process, as it would have saved me a lot of grief. But their is no magic to it. It takes time - and dogged perserverance. You indicate that you were told that if you paid off $3,200 of these debts that your score could get to 620 within the next 3 - 4 months. I disagree with that. That would still leave your overall percentage of utilization at 83%. And there is no way that your score could rise with that utilization percentage. Perhaps now is just not the right time to purchase a home. I wish you the very best of luck - and success in your credit journey.

[seanf12]

Thanks CGeorge.  My actual total credit available is $35750 ( I edited my post to reflect this).  According to the sticky threads around credit utilization that many people refer to on here (from Birdman and ABC2199 I believe), I was under the impression that as you cross these thresholds you get a bump of some sort..  I understand though that 30% may be the ideal place to be

[thornback]

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@seanf12 wrote:

Revolving Debt - Aggregate utilization is 93%:

Mercury card - $4696 balance, $4500 limit // Currently 104% util.   Pay $890  to bring to $3806 (84.5% util)

Capital One - $3977 balance, $4000 limit  // Currently 99.9% util.   Pay $890 to bring to $3087 (77% util). 

Merrick Bank - $1727 balance, $1800 limit  // Pay to $0

Walmart - $1437 balance, $1500 limit  // Pay to $0

Credit One - $1254 balance, $1500 limit  //  Pay to $0

Merrick - $1157 balance, $1200 limit // Pay to $0

Best Buy - $567 balance, $750 limit // Pay to $0

Capital one - $559 balance, $1300 limit //  Pay to $0

Milestone - $0 balance, $300 limit // maintain this $0 balance

target card - $0 balance,  $900 limit // maintain this $0 balance

Macy - $0 balance, $1100 limit // maintain this $0 balance

Ascend Unsecured Credit Line - $16800 balance, $17000 limit  // If you have any extra funds to throw at this one, you should do so.  It's currently at 98.8% util so if you can get it down below 88.9% (less than $15,113), that'd be helpful. 

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In addition to utilization, Mortgage scores are sensitive to the number of cards with a balance so you want to have as many $0 balances reported as possible.  I'd use the $8500 to pay off/down as noted in red above fo r maximum scoring benefit.    I don't know for how long you've been carrying these high balances, hopefully, your creditors won't balance chase you as you payoff/paydown. 

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@seanf12 wrote:

I have two CAs on my report, one is settled and closed, the other will be settled and closed on Friday (both to show a $0 balance). 

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You are losing a massive amount of points due to utilization and all cards reporting a balance -- but those collection accounts are also keeping your scores suppressed.  I'd try to have them removed.  The one that is showing as settled and closed,  reach out to the CA and see if you can get a goodwill removal of the tradeline. 

The one that you just paid - reach out to the CA and see if you can get a removal.    

What are the names of the collection agencies? 

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@seanf12 wrote:

I also have a CO from Jan 2019 that shows as closed, but a balance of $1100.  It hasn't reported in two years

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Eventhough it's not updating monthly, this hurts -- that balance is factoring into your overall utilization and it counts as another account with a balance.  I'd tell you to pay it but it's hard to say how your scores will respond in doing so since it hasn't updated in so long (the score drop from a sudden update may exceed any points gained from eliminating the utilization and the additional card with a balance).     Check with your lender to see if payment of the charge-off will be a requirement for approval (some mortgage lenders require chargeoffs and collections be paid, some will work around it).    If they require payment, then obviously you have no choice.  If they don't require payment, then let it ride as is and hope the reporting creditor doesn't update before you secure your loan. 

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@seanf12 wrote:

I have 3 x 30 day late payments from Jan 2019 as well

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These have aged beyond two years so some of their sting has gone away -- but they still hurt.  I don't know how much time you have, but you may want to try sending a Goodwill to the creditor to see if you can have the lates removed (though if it's a creditor that you currently have a maxed out balance with, they may not be willing to entertain a goodwill -- you may have to pay off/down the account first). 

[thornback]

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@seanf12 wrote:

According to the sticky threads around credit utilization that many people refer to on here (from Birdman and ABC2199 I believe), I was under the impression that as you cross these thresholds you get a bump of some sort..  I understand though that 30% may be the ideal place to be

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Correct.   As you pass below/above a utilization threshold for scoring, you should see a gain/loss in points.  Utilization thresholds apply to individual card utilization as well (though the scoring gain/loss is not as great).     Less than 28.9% aggregate is ideal, but you can work towards that later -- in the meantime, get your scores to the point where you'll qualify for your mortgage loan (see my previous post).  

[seanf12]

Thanks!  One of the CAs is with Ad Astra, who I know does not do a PFD and automatically removes paid\settled CAs after two years.  The othe ris with NCB Management, but I screwed up and paid the account prior to getting a PFD.  I may give them a call and see if they are willing, but I fear I have lost my leverage.

I don't believe the CO will need to be paid, the lender I have spoken with has no overlays to FHA guidelines, and the guidelines state that charge offs do not need to be paid.

[CGeorge]

It sounds like you are really putting forth the effort to get the derogatory marks on your credit report removed - keep up the good work - you will get there!

[thornback]

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@seanf12 wrote:

The othe ris with NCB Management, but I screwed up and paid the account prior to getting a PFD.  I may give them a call and see if they are willing, but I fear I have lost my leverage.

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Definately reach out and try.  Many times, collection agencies no longer have much concern about reporting once they get paid -- so you never know, they may be willing to remove it. 

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@seanf12 wrote:

I don't believe the CO will need to be paid, the lender I have spoken with has no overlays to FHA guidelines, and the guidelines state that charge offs do not need to be paid.

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Gotcha.  OK, if they're not requiring payment for your approval then let it be -- but once your loan is finalized, i'd recommend paying it just to prevent any future damage -- just because the creditor hasn't updated for a while, doesn't mean they never will -- paying will also prevent an additional collection account from popping up down the road. 

[Anonymous]

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@seanf12 wrote:

Thanks!  One of the CAs is with Ad Astra, who I know does not do a PFD and automatically removes paid\settled CAs after two years.  The othe ris with NCB Management, but I screwed up and paid the account prior to getting a PFD.  I may give them a call and see if they are willing, but I fear I have lost my leverage.

I don't believe the CO will need to be paid, the lender I have spoken with has no overlays to FHA guidelines, and the guidelines state that charge offs do not need to be paid.

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Both AD Astra and NCB do PFD. For AD Astra has it been at least 2 years since the original account became delinquent? I still would speak to AD Astra about PFD even if they do so as a matter of policy. I would never pay without at least touching on the deletion portion. There needs to be some verbal/written communication about it.

I would definitely reach out to NCB. Go directly to a Supervisor/upoer management. Do not speak to any of the frontline CSRs about it. They are not helpful and do not have the power to do any deletions, they will be adamant about a supervisor will not be able to assist you. You need to just bypass them altogether. They definitely do PFD. So maybe you can ask them to delete since you paid/settled.

And like mentioned a few times above, the biggest thing crushing your mortgage scores is number of accounts with a balance and being basically maxxed out on all of them. With being stretched thin on your available credit, you will seem risky, and the banks may be reluctant to lend you a large sum of money (mortgage) if you cannot pay down your debt. The level of this debt may also drasticlly increase your DTI and lower how much home you can get.

The CO is also hurting your scores and will be factored into your DTI.

[Anonymous]

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@seanf12 wrote:

Apologize in advance for the long post, but was hoping I could get a sanity check on plan of action.  My goal is to raise my mortgage FICO scores (so FICO 2, FICO 4, etc) in order to qualify for an FHA or conventional in the next 3-4 months, and from what I have been told by a couple of local lenders, I would need at least a 620, but a 640 would be even better.  A lender I spoke with offered up a plan to raise my Experian FICO 2 score via the CreditXpert tool (which I know these tools are suspect at best) to a 620 (which involved paying $3200 towards these debts), but for some reason she keeps telling me it won't tell her how to get to a 640.  

In terms of baddies on my report:

I have two CAs on my report, one is settled and closed, the other will be settled and closed on Friday (both to show a $0 balance). 

I also have a CO from Jan 2019 that shows as closed, but a balance of $1100.  It hasn't reported in two years

I have 3 x 30 day late payments from Jan 2019 as well

My current utilization situation:

Experian FICO 2 - 592

Transunion Fico 4 - 602

Equifax FICO 5 - 574

Revolving Debt - Aggregate utilization is 89%:

Mercury card - $4696 balance, $4500 limit

Capital One - $3977 balance, $4000 limit

Merrick Bank - $1727 balance, $1800 limit

Walmart - $1437 balance, $1500 limit

Credit One - $1254 balance, $1500 limit

Merrick - $1157 balance, $1200 limit

Best Buy - $567 balance, $750 limit

Capital one - $559 balance, $1300 limit

Milestone - $0 balance, $300 limit

target card - $0 balance,  $900 limit

Macy - $0 balance, $1100 limit

Ascend Unsecured Credit Line - $16800 balance, $17000 limit

I read through the Birdman sticky thread around credit utilization thresholds, and if my math is correct, if I pay $8000 towards the above debts (in order to attempt to get to a 640), I should cross the 68.99 threshold, which is two thresholds below where I am now.  Am I understanding this correctly?  If so, does it matter which cards\credit line I place the $8000 towards?  is it even worth it in terms of the expected bump in score, or chances are that still won't be enough to get to a 640?

Thanks in advance for your help!

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@seanf12it'll take more than a couple thresholds to get you where you need to be, imho. When were the CAs opened? when was the one paid? Great advice above.