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hjang1975

Best way to pay down CC balances to maximize FICO score?

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I have approximately $110k credit card debt with a combined card limit of $115k, so this is over 90% and impacts my FICO score substantially.

High utilization of revolving credit is the only negative.

 

I also do have ~$120k cash available.

 

The $110k are spread across ~15 cards.

The largest balances are:

A - $32k

B - $30k

C - $17k

and a couple smaller cards averaging $4k each.

 

I've been in this situation before, paid off every single card and the score went from 680 to 760 (Equifax FICO score)

 

I don't really need a 760 but 720+ would be fine.

Also, I don't want to blow too much of the cash as I need reserves for financing that I'm working to get. The same lender who wants me to have those reserves also wants to see a 700 FICO score.

The lender wants to see 700 which usually means Equifax will need to show me 720 (the lenders always seem to come up with a ~20 point lower number)

 

So, I'm thinking, I need to dedicate maybe 42k.. bring it down to 68k of 115k.. which means going from 96% to 59% (37% drop)

 

 

Does it matter how I apply those 42k? I would prefer to pay the highest interest rate cards first. (The largest balances are at 1.99%. Some are at 0%)

 

Or should I pay down each card by 37% so that there are no maxed out cards in the mix at all any more?

 

Thank you for your insights.

Edited by hjang1975

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You'll get varying levels of thought on this. My question would be to you: What is your goal where your main concern is your FICO score for paying down? Is that lender for a debt consolidation loan, to get all your payments under a more manageable interest rate? Lots of information here that I don't have enough information to answer for you, either. This will one of those times the majority will likely tell you "FICO be damned, pay down the highest interest first," but depending on your current goals, that could change. To better answer, we'd need to know the cards/ages/limits/balances/APR - I recommend the spreadsheet by NYRFan > https://creditboards.com/forums/index.php?showtopic=237067&p=5682471- When you have it broken down that way, it will be easier for those helping to be able to pitch in advice.

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I would only stratgeize and spend money on interest if you are about to apply for a mortgage and your mid score is currently under 720.

 

otherwise STOP PAYING INTEREST!

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Heg beat me to it.

 

Forget about FICOs unless there is an urgent need to apply for something and pay things off so that you spend the least amount of money possible.

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So, I'm thinking, I need to dedicate maybe 42k.. bring it down to 68k of 115k.. which means going from 96% to 59% (37% drop)

 

 

 

59% utilization is still quite high. I am not convinced you will get the increase you are hoping for. Barry Paperno, who worked at FICO for 25+ years says combined utilization will have more of an impact than individual utilization though the latter does have an impact as well.

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I have approximately $110k credit card debt with a combined card limit of $115k, so this is over 90% and impacts my FICO score substantially.

High utilization of revolving credit is the only negative.

 

I also do have ~$120k cash available.

 

The $110k are spread across ~15 cards.

The largest balances are:

A - $32k

B - $30k

C - $17k

and a couple smaller cards averaging $4k each.

 

Pay down A, B, & C so that they report 49% utilization each... max.

 

Pay off all the smaller balances. You may have to wait for 2 billing cycles for these to report a zero balance because of residual interest.

 

If you get balance chased this will defeat the purpose.

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I don't really need a 760 but 720+ would be fine.

Also, I don't want to blow too much of the cash as I need reserves for financing that I'm working to get. The same lender who wants me to have those reserves also wants to see a 700 FICO score.

I also do have ~$120k cash available.

 

Key point of why my follow-up question...To know why the on-hand, etc is needed for OP's intent, in case it's job-related, etc. I'm not against paying it off, but if OP needs a business mortgage or something, having the on-hand makes more sense. :D

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If A, B, C are at 0%-1.9%, then you only have $31K on 12 cards at high interest. Pay off those 12 cards, and then divvy up whatever else you want to pay between the last 3.

 

The two problems are:

 

1 The high utilization 3 remaining cards keep your score drug down

 

2 You find yourself in a negative segment tree that takes a month or two to escape.

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>> Is that lender for a debt consolidation loan ? <<

 

I'm sorry, I did not think I should have provided that in the original post. No, it is not a debt consolidation loan.

I'm refinancing a much larger commercial real estate loan (apartment complex) which is currently at nearly 6%.. floating and thus at risk to rise further should LIBOR increase.

 

With my current score, I have offers to refinance between 4.8% and 5%, fixed for 5 years. That's a good improvement compared to floating at 6%

 

There's one lender who would refinance me to [not locked in] ~4.25%, but this lender requires the 700+ score.. and 5% reserves (in my case: $1M loan, I need to show $50k reserves).

 

So, I could just sign the letter of interest and go for the 4.8%, or play games with FICO, pay cards down but still keep $50k+ in reserves... and get a ~0.6% lower rate.

Closing cost are comparable.

 

That 0.6% on $1M is nearly $6k savings in the first year .. worth it, right?

 

 

The only down side with the 4.25% lender is that they amortize over 25 years and the 4.8%+ lenders all use 30 year amo.. maybe it's a wash. Cash flow wise it's probably the same.

 

 

As I said, I don't want to blow too much money on paying down the cards. $50k would be ok, paying $70k would be the "limit" to leave me $50k "reserves".

 

 

There is no reward for bringing the score higher than 700.

Edited by hjang1975

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Barry Paperno, who worked at FICO for 25+ years says combined utilization will have more of an impact than individual utilization though the latter does have an impact as well.

 

 

 

 

is that really true? That would be a precise answer to my questions. So it's better to spread the payment across all cards, e.g. better to pay off each card by 40% than to pay off 4 cards by 100%.

Is there a reference where this was discussed? I googled "Barry paperno" .. evaluating the links now.

 

Thanks!

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Paying off the lesser higher-interest cards gives less cards reporting balances. Then, getting each of the larger balances under a bar gives significant boosts when you get under certain utilization levels, both overall, and individually: (10%/30%/50%/70%/90% IIRC are the various major levels of FICO 08 boosting scoring)

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Paying off the lesser higher-interest cards gives less cards reporting balances. Then, getting each of the larger balances under a bar gives significant boosts when you get under certain utilization levels, both overall, and individually: (10%/30%/50%/70%/90% IIRC are the various major levels of FICO 08 boosting scoring)

 

 

I think you're onto something here. The sheer number of cards with balances (even if each had a balance of $1 only) is a negative, right?

 

So, if I had 10 cards with identical limits, it's better to have 1 card with a $10 balance and 9 other cards showing $0 than to have 10 cards with $1 each.

 

It's just tempting to log into all those sites right now and schedule some payments.

The largest cards report around the 13th, so I have a few days. Most of my smaller cards report after the 20th.

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Paying off the lesser higher-interest cards gives less cards reporting balances. Then, getting each of the larger balances under a bar gives significant boosts when you get under certain utilization levels, both overall, and individually: (10%/30%/50%/70%/90% IIRC are the various major levels of FICO 08 boosting scoring)

 

In regards to INDIVIDUAL cards:

 

You WON'T get a significant boost at 89% or 69%. That's why I posted 49% in my above post. Overall utilization shouldn't even be a factor. When the individual cards are lowered, obviously the overall util will be reduced.

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Kat, Konrad, and I are all giving you the same idea, just presenting it in different manners. You want to be under 50% on all cards if you're looking for score boost. Ideal is under 10%, but that doesn't look feasible with the amount you have on-hand vs the amount you're looking to be on. I have to get ready for work, but can't do the math currently anyway. You can put the cards and information into the spreadsheet I linked you earlier, and it would list it VERY simply for you. You could then set the %UT number to 49%, and it would automatically calculate the payments needed for each of those cards.

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Barry Paperno, who worked at FICO for 25+ years says combined utilization will have more of an impact than individual utilization though the latter does have an impact as well.

 

 

 

 

is that really true? That would be a precise answer to my questions. So it's better to spread the payment across all cards, e.g. better to pay off each card by 40% than to pay off 4 cards by 100%.

Is there a reference where this was discussed? I googled "Barry paperno" .. evaluating the links now.

 

Thanks!

 

 

Somewhat. If you have 1 maxed out card, that alone can tank your FICOs.

 

While Kat is correct that getting below the 50% tier will have the largest impact on FICOs, getting below 70% is also a big factor.

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90% is considered maxed out. Any card over that will have large negative impact.

 

I was able to maintain mid-700s with several cards with balances because I kept them around 50% and my overall util was kept down by lots of extra cards with high CLs.

 

I doubt that paying off small cards just to get fewer cards with balances will do much. On the other hand if those cards are maxed out, paying them down is key.

 

Focus on getting all your cards to 50% first.

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I doubt that paying off small cards just to get fewer cards with balances will do much. On the other hand if those cards are maxed out, paying them down is key.

$110K of debt on $115K of limits. They're all essentially maxed out

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Paying off the lesser higher-interest cards gives less cards reporting balances. Then, getting each of the larger balances under a bar gives significant boosts when you get under certain utilization levels, both overall, and individually: (10%/30%/50%/70%/90% IIRC are the various major levels of FICO 08 boosting scoring)

 

In regards to INDIVIDUAL cards:

 

You WON'T get a significant boost at 89% or 69%. That's why I posted 49% in my above post. Overall utilization shouldn't even be a factor. When the individual cards are lowered, obviously the overall util will be reduced.

 

 

 

I re-read my original post, my proposal had been 59%. Not 69 or 89.

 

 

One of the responses mentioned known thresholds.. "10%/30%/50%/70%/90%"

The 60% is missing in that list. So, I guess that's why you're talking about 49% vs 69%.

 

I think I can afford to go to 49%.. 120k cash avail.. pay balance down from 110k to 50k (under 50%) and still have 60k to show the lender as reserves.

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