Will this hurt more than help?

[Rwil72]

I need 10 points to get to 620 mortgage score. I have a credit card that is maxed out. I was thinking of taking out and installment loan to pay off card which would bring my total revolving debt down 10%. Would the negative of opening up a new account negate the benefit of having my utilization go from 80% to 10%. All I need is a 10 point jump now to get approved for conventional mortgage.

[SouthJamaica]

---

@Rwil72 wrote:
I need 10 points to get to 620 mortgage score. I have a credit card that is maxed out. I was thinking of taking out and installment loan to pay off card which would bring my total revolving debt down 10%. Would the negative of opening up a new account negate the benefit of having my utilization go from 80% to 10%. All I need is a 10 point jump now to get approved for conventional mortgage.

---

Being maxed out is bad for your mortgage score.

But getting a new loan is bad for your mortgage score too.

I don't know which would count more, I would just be guessing, but if I had to guess it would be that paying the card down will help more than the new loan will hurt.

One way to possibly pick up some points without a new account would be to do some balance transfers from the maxed out card to other cards, making sure that no individual card reports a balance greater than 28%.

[Anonymous]

Opening a new account (installment loan in this case) just before going for a mortgage is not recommended.  When was the last time you opened an account, that is, what is the age of your youngest account?  If it was over a year ago, it's possible that the the AoYA drop, AAoA drop and inquiry could amount to more points lost than taking a maxed out card down.

The bigger question to me would be where your aggregate utilization sits currently and where it would be if you eliminated the maxed out card from the equation.  Aggregate utilization is King to individual card utilization in a big way, so I'm wondering if your aggregate utilization would cross any thresholds here.

[Rwil72]

Thank you for the information,
My overall cc utilization is at 80%. If I pay off the one card it would drop my overall utilization to 10%. Most of my usage is this one card.

[Caardvark]

I think it is safe to assume you'll gain a lot more than 10 points if you pay this card down to 10% (ideally your aggregate utilization should be under 8.9%).

The above may not hold true if you open another account or loan to do so. 

[Anonymous]

---

@Rwil72 wrote:
Thank you for the information,
My overall cc utilization is at 80%. If I pay off the one card it would drop my overall utilization to 10%. Most of my usage is this one card.

---

If you took your overall utilization down from 80% to 10%, you'd be crossing 3 aggregate utilization thresholds as well as taking your highest individual utilization card down significantly.  This would result in a score gain to the tune of 50 points or so IMO, give or take.  You still have to weigh that against the opening of a new account, though.

[Anonymous]

Paying your balance down would be more beneficial than opening a new account and moving the debt around. Because the lending institution is going to go through your finances with a fine tooth comb, and it would be better for them to see less debt. A 20 point score increase means nothing if they feel you're financially strapped.

[Rwil72]

I understand the best option of course is to pay debt down without using a loan to do so, but time is an issue and I wanted to see how could I quickly gain 10 points.

[KLEXH25]

Not sure it can be done quickly, if paying off the debt on your own is not an option. Opening a new account / loan will result in a score drop, so you will then have to regain what you lost PLUS 10 more points. Even if a loan got you to this apparently "magical" score of 620, they look at much more than just your score. They say NO new accounts for 12 months before applying for a mortgage. It may open the door to apply, but that door will close quickly once they've looked inside.

[Rwil72]

Thank you for your advice, but I have to respecfuly disagree with you on both points. First when you state

it can't be done quickly. I Know the card reports on the 3rd. If all my cards show under 10% There will be a change

in my score on the 4th if my credit is pulled. I disagree with your second point about not being allowed to open new

debt for 12 months before applying. I know that to be false, mortgage companies don't like it but if your DTI stays

under the requirements it wouldnt be a problem. The only question at hand is will the points gained from the cards being paid off

be negated by the points loss from opening a new installment account?