Which is better for my credit score ? Paying same amount of debt now or 5 months from now ??

[Anonymous]

I have some money saved up...only about 3k. I am planning to use this for a down payment for a home. At the same time, I am aggressively paying off about 10K in credit card debt left over from a divorce. My plan was to pay off my debt with my income from work and when I am done with that, to start adding my income torwards the 3k in savings I have. My wife told me tonight that maybe it's better to take that 3k I have saved up and use that to pay down my debt....which means I will pay it off faster and THEN and only then can I start saving for a down payment for my house. I told her that I thought that it doesn't matter if I pay down my debt now or later...that my credit score will increase, but no differently. I told her that the end result will be an increase, but that paying it off sooner or later will not really effect the score too much. Is this true or is she right ? Should I pay down my debt now or keep the 3k in my savings and just slowly chip away at the debt which I am doing now. Thanks for all your help !~

[RobertEG]

You are correct in that %util has no memory of how you got there, it only matters where you are.  So if you pay it now or in 5 months, the end FICO will be the same as to %util.

The real difference is not so much a FICO consideration as it is a financial consideration.  A debt of $10,000 at, for example, an APR of 15%, will cost you approx $125 a month in interest.  By paying it down sooner rather than later, you will reduce interest accrual during that five months, saving you money.  Paying off $3000 now will reduce debt to $7000, and thus next months interest to under $90, assuming a 15% CC APR.  If my math is correct, paying $90 from my pocket is better than paying $125.  Dah????  LOL!

From all you have said, I would pay it now.

Message Edited by RobertEG on 05-19-2008 10:49 PM

[Anonymous]

Thanks Robert ! No wonder they have you labeled as a super contributor ! Appreciate the quick response. Regards, N

[Anonymous]

Yep, pay faster. Score based on total revolving debt. Less = higher score.