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I have always thought that overall utilization was the main determing factor when it comes to calculating FICO scores. But, after reading the fourms, it seems that individual card utilization matters too. Can anyone recommend which card I should pay down first for the biggest jump? I have made some mistakes in the past and I am trying to get more responsible with my finances, and possibly buy a house in the future.
Let's say I have $1000 this month to pay down debt. Should I pay one card off in full, or send two cards $500?
Capital One Plat. Limit $500 / Bal $445
Capital One QS. Limit $1100 / Bal $1031
Merrick Bank. Limit $1400 / Bal $1060
Credit One. Limit $800 / Bal $709
First Premier. Limit $700 / Bal $555
First Premier. Limit $700 / Bal $545 (Yes, I have two, unfortunately)
Brylane Home. Limit $780 / Bal $385
Milestone Bank. Limit $300 / Bal $114
Overstock Card - Limit $300 / Bal $0
F21 Store Card. Limit $250 / Bal $0
Walmart card - Balance $0 (closed)
Thanks in advance.
Overall utilization is "king," as BrutalBodyShots would say. But individual card utilization is important too. It's determined by the card with the highest utilization.
In your case, individual card utilization is especially important because several cards are maxed or near maxed. That's a big scoring hit. The good news is that all plans of attack address overall utilization, so you can let it go along for the ride when you determine how you'd like to pay.
Number/percentage of cards reporting non-zero balances factors in too. But until you bring your individual card utilization down quite a bit, gains from paying cards to zero will be minimal.
Known scoring thresholds are at 8.9%, 28.9%, 48.9%, 68.9%, and 88.9% (maxed). With your hypothetical $1,000, I'd try to bring all cards down to 67% utilization. That should allow you to remain under 68.9% once the next statement tacks on interest. This should leave a little over $200 to play with. Use that to pay off the small $114 Milestone balance. Anything left over can go toward the $385 Brylane balance.
Did not know about these threshholds. Thank you so much.
Sorry! One more question. Would you know if the threshholds also apply to installment loans? Such as car payments, etc?
There is something analogous which is called Installment Utilization or Balance/Loan ratio. It matters in FICO 8. You get 30-40 points from having open loans that are mostly but not entirely paid off (total IU of < 8.99%) -- compared with loans on which you owe most of the original loan amount (> 90%). Exactly where the middle breakpoints are nobody knows for sure.
Do you have any open loans?
Yes. I have two open installment loans. One is a car loan (sitting at 79% remaining) and the other a loan I took out for my child's orthodontics that is at 50% remaining.
FICO doesn't clobber you for high installment utilization like it does for high credit card utilization. There's no significant reason to accelerate your loan payments unless you want to save on interest.
@HeavenOhio wrote:FICO doesn't clobber you for high installment utilization like it does for high credit card utilization. There's no significant reason to accelerate your loan payments unless you want to save on interest.
Yup, and even then in the saving on interest one would almost assuredly be better off paying revolvers.
I'd simply apply the payment to the highest APR, then any remaining to the next highest etc... at some level FICO scores don't matter much in comparison to finances, and getting out of debt the quickest and least amount of interest paid is generally the right path for everyone.
@Anonymous wrote:I have always thought that overall utilization was the main determing factor when it comes to calculating FICO scores. But, after reading the fourms, it seems that individual card utilization matters too. Can anyone recommend which card I should pay down first for the biggest jump? I have made some mistakes in the past and I am trying to get more responsible with my finances, and possibly buy a house in the future.
Let's say I have $1000 this month to pay down debt. Should I pay one card off in full, or send two cards $500?
Capital One Plat. Limit $500 / Bal $445Capital One QS. Limit $1100 / Bal $1031
Merrick Bank. Limit $1400 / Bal $1060
Credit One. Limit $800 / Bal $709
First Premier. Limit $700 / Bal $555
First Premier. Limit $700 / Bal $545 (Yes, I have two, unfortunately)
Brylane Home. Limit $780 / Bal $385
Milestone Bank. Limit $300 / Bal $114
Overstock Card - Limit $300 / Bal $0
F21 Store Card. Limit $250 / Bal $0
Walmart card - Balance $0 (closed)
Thanks in advance.
Given all the highly utilized cards, not sure you will see a significant score increase regardless of the payment approach. That being said, if you want to minimize risk of adverse action on cards, make something more than the minimum payment on all cards at least until they are below 49% utilization. Also, put focus on a paydown strategy that gets utilization levels down below 69% before paying cards to zero. Then consider paying off highest APR cards while continuing to make more than minimum payments on all cards.
Good luck.