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LJS37

Raising score with high balance CC's - Use HELOC?

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Need some advice here please folks

 

I have a credit score of 659, No late payments in 7 years+ and no collections/Judgements but I have several lines of credit that are utilized above 60%. I have been told it is holding my score back.

 

6 Credits cards with a total utilization rate of 60.8% or $45k in credit lines and $27K used. Two car loans at 73% but these are not a traditional revolving line.

 

I have a HELOC with a credit line of $46k.

 

I would like to refi my Mortgage from a current rate of 4.25% to 3.75% but need a 680 score to do so. The potential savings on the Half point interest is significant plus I also drop PMI due to the 30% equity stake.

 

Would using the HELOC to pay the credit cards down to 25% Utilization raise the score enough in the next two months to bring my FICO to 680 or above? If I paid $16k on the credit cards that would bring all balances down to 25% utilization, that’s for all the cards plus the HELOC.

 

Or do I pay all of them off for $27k with the HELOC? That would bring my HELOC Utilization to 59% - Not Good, Or pay a couple off too zero to reduce the lines being used and then pay some of the others down to 35-40% Utilization ? Still keeping the $16k of used HELOC funds?

 

My calculations on snowballing this debt including the cars ....I am done in just under 3 years, But I want to take advantage of the rates on the mortgage now while I can.

 

I guess in simple terms I am asking what’s the best position to take to jump the score quickly so I can get the REFI done. The debt reduction planning is already done but it will take 2 years 9 months.

 

Thanks

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Ok, take what I suggest here with at least a modest grain of salt:  credit scoring details are murky at best, particularly when it comes to how HELOC balances are scored.

 

That said, there are two general thresholds at which utilization starts to take a strong toll on your credit score:  overall utilization in excess of 30%, and utilization of any single credit line in excess of 50%

 

The second tidbit I'm offering is the more murky factoid:  HELOC's with balances below a threshold of something like $30k are typically scored similarly to revolving accounts.  Higher balance HELOC's are evaluated similarly to installment loans.

 

Taking this information at face value, FICO will evaluate your accounts as having a revolving balance of $27k against total credit lines of $91k ($45 credit card/$46 HELOC).  That equates to an overall utilization of 29.7%.  So, potentially you're in the clear on the overall utilization front and it's likely your score is getting a hit from individual line utilization.

 

Note, however, this overall utilization doesn't leave much room for interim monthly balances which you pay in full each month (if that's a factor).  I might suggest that you provide at least nominal leeway for "breathing room" and target overall utilization of 28%.  This would require a one-time repayment of approx $1500, dropping you to $25.5k in balances.

 

-------------

 

I've addressed overall utilization; let's look at individual card utilization:  As I note, there's typically a pretty stiff score hit once any single account crosses the 50% utilization threshold.  With roughly 60% of your card lines in use, it's a good bet that 3 or more of your cards are key to keeping your score where it is.

 

Generally speaking, 50% is a minimum target for max utilization of any one revolver.  There are significant score gains for every 10% threshold below this (40%, 30%, etc.)  With the account balances you note, and the availability of the HELOC LOC, optimally you can reallocate so that all balances are under 30% utilization.

 

To do so, you simply apply the 28% suggested utilization target against each of the respective credit lines to arrive at a target balance after reallocation.  When everything is said and done, you would move $13k to the HELOC, leaving $12.5 on the cards (assuming you've repaid $1500 up front).  You'd establish a balance on each individual card that was approx 28% of it's respective limit.

 

-------------

 

I hope this discussion is clear and helpful.  I grasp the $1500 paydown may be a stretch. (Of course, to the extent that you pay additionally on your credit lines, that gets reduced.)  By all reports the 30% utilization threshold is significant (overall and, to a lesser extent, individually).  It's been suggested that fractional % pts are rounded up (29.2% becomes 30%).  Note, however, that there's some suggestion that the thresholds are "greater than", so 30% is in the same bandwidth as 25%, not 35%.

 

I'll look to reply to any questions you might have.

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As noted, there is a LOT in play.  The first question to resolve is HOW you came to get that many cards in that state of utilization.  If spending is not being placed in check, then it makes NO sense to put the HELOC into play for payment of the accounts. 

 

Secondly, scores take into account more than just the individual balances.  The ratio of cards with a balance to overall cards is ALSO a factor.  If every card has a balance, you are screwing yourself on the score. 

 

Rather than worrying about a half-point in interest, I would focus on getting the balances reduced as quickly as possible through additional payments.  This INCLUDES making sure you are paying more than the minimum on the mortgage.  Look at the thread CV has about killing a mortgage through multiple payments, however small they might be...

 

A competent underwriter will see that there was no actual payment going on but rather that you were balance shifting.  That can be a big red flag, especially with some of the indicators we have seen in the past few quarters...

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55 minutes ago, centex said:

As noted, there is a LOT in play.  The first question to resolve is HOW you came to get that many cards in that state of utilization.  If spending is not being placed in check, then it makes NO sense to put the HELOC into play for payment of the accounts.

-> Fair advice.  In replying, I've trusted the OP is taking intelligent steps to eliminate existing debt and avoiding the accumulation of new debt.  The advice is warranted all the same.

Quote

 

Secondly, scores take into account more than just the individual balances.  The ratio of cards with a balance to overall cards is ALSO a factor.  If every card has a balance, you are screwing yourself on the score. 

-> Percentage of credit lines in use is a factor, but my experience suggests that it's minor at relative to utilization.  With the immediate question of how best to reallocate the debt to improve score, there's not much room to address the credit lines in use. 

 

(btw, I'm hoping OP has at least some CL's with $0 balances ... store cards and the like, at minimum.  In any case, ultimately reducing the number of credit lines in use should be a goal ... ideally with repayment and not at the expense of increasing utilization on accounts with balances.)

Quote

 

Rather than worrying about a half-point in interest, I would focus on getting the balances reduced as quickly as possible through additional payments.  This INCLUDES making sure you are paying more than the minimum on the mortgage.  Look at the thread CV has about killing a mortgage through multiple payments, however small they might be...

 

A competent underwriter will see that there was no actual payment going on but rather that you were balance shifting.  That can be a big red flag, especially with some of the indicators we have seen in the past few quarters...

 

FWIW, I've never had a mortgage underwriter scrutinize my credit history in that manner.  Even if one were to, I'd understand flagging repeated instances over a number of months.  Merely shifting some revolving to a HELOC one time is something I don't see anyone raising eyebrows over, provided payment ratio guidelines aren't exceeded.

Edited by hdporter

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4 hours ago, LJS37 said:

Need some advice here please folks

 

I have a credit score of 659, No late payments in 7 years+ and no collections/Judgements but I have several lines of credit that are utilized above 60%. I have been told it is holding my score back.

 

6 Credits cards with a total utilization rate of 60.8% or $45k in credit lines and $27K used. Two car loans at 73% but these are not a traditional revolving line.

 

I have a HELOC with a credit line of $46k.

 

I would like to refi my Mortgage from a current rate of 4.25% to 3.75% but need a 680 score to do so. The potential savings on the Half point interest is significant plus I also drop PMI due to the 30% equity stake.

 

Would using the HELOC to pay the credit cards down to 25% Utilization raise the score enough in the next two months to bring my FICO to 680 or above? If I paid $16k on the credit cards that would bring all balances down to 25% utilization, that’s for all the cards plus the HELOC.

 

Or do I pay all of them off for $27k with the HELOC? That would bring my HELOC Utilization to 59% - Not Good, Or pay a couple off too zero to reduce the lines being used and then pay some of the others down to 35-40% Utilization ? Still keeping the $16k of used HELOC funds?

 

My calculations on snowballing this debt including the cars ....I am done in just under 3 years, But I want to take advantage of the rates on the mortgage now while I can.

 

I guess in simple terms I am asking what’s the best position to take to jump the score quickly so I can get the REFI done. The debt reduction planning is already done but it will take 2 years 9 months.

 

Thanks

Who's offering 3.75% APR mortgages with a 680 FICO? 

 

That boggles my mind.

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23 minutes ago, cashnocredit said:

Who's offering 3.75% APR mortgages with a 680 FICO? 

 

That boggles my mind.

myFICO's mortgage center.  (I don't vouch for reliability) 

 

FWIW, I think it's feasible with reduced util, OP might score as high as 720.  (Depends on what's really pushing down her FICO, and the FICO model cited.)

Edited by hdporter

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5 hours ago, centex said:

As noted, there is a LOT in play.  The first question to resolve is HOW you came to get that many cards in that state of utilization.  If spending is not being placed in check, then it makes NO sense to put the HELOC into play for payment of the accounts. 

There is multiple lines of revolving of credit, Sorry i should have made that clear, The 6 i mentioned above are balances with over 60% Utilization.  I have outlined each below in separate comment for a clear picture. Not all Lines have a balance. 

The cards with very High balances resulted in balance transfers from previous cards that have no balance currently. Reckless and yes basically i have been shifting balances. 

Quote

Rather than worrying about a half-point in interest, I would focus on getting the balances reduced as quickly as possible through additional payments.  

Its Half point on S375k while dropping over $250 a month in PMI, Its considerable. Infact its so considerable it will help pay the debt of faster.

Quote

 

 

Edited by LJS37
Updated Details

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3 hours ago, cashnocredit said:

Who's offering 3.75% APR mortgages with a 680 FICO? 

 

That boggles my mind.

Local CU, But in general i have been told i can refi into a 4.25% Conventional with my current score. 

 

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3 hours ago, hdporter said:

myFICO's mortgage center.  (I don't vouch for reliability) 

 

FWIW, I think it's feasible with reduced util, OP might score as high as 720.  (Depends on what's really pushing down her FICO, and the FICO model cited.)

For complete clarity, Here is an outlook of the Revolving Lines. This may paint a better picture of what i am trying to do here, 

I do have a $3300 budget to attack some of these, 

 

Name Credit Line Balance % to Line
CC1 $3,500.00 $2,525.00 72.14
CC2 $9,000.00 $5,800.00 64.44
CC3 $4,500.00 $0.00 0.00
CC4 $5,000.00 $4,500.00 90.00
CC5 $2,000.00 $1,475.00 73.75
CC6 $3,500.00 $3,400.00 97.14
CC7 $5,000.00 $4,400.00 88.00
STORE 1 $1,000.00 $800.00 80.00
CC8 $700.00 $0.00 0.00
CC9 $1,200.00 $375.00 31.25
STORE 2 $6,900.00 $1,200.00 17.39
CC10 $4,000.00 $1,670.00 41.75
       
Totals $47,500.00 $26,845.00

56.52

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Just so i am clear on the goals. The aim is not to shift the debt around into different lines for long term. I have already started hammering down these with highest interest 1st. CC1 & CC2 being the largest interest rates. Snowballing this lot will take 18 Months to clear based on available income. then the cars to be left with only the mortgage.

 

The HELOC line is 5.75%. If using it to spread the utilization of the balances of the credit cards will not raise my score will likely end up in me not using it. The only reason i would do this is to raise the score to get the better rate mortgage with PMI elimination.

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6 hours ago, hdporter said:

Ok, take what I suggest here with at least a modest grain of salt:  credit scoring details are murky at best, particularly when it comes to how HELOC balances are scored.

 

That said, there are two general thresholds at which utilization starts to take a strong toll on your credit score:  overall utilization in excess of 30%, and utilization of any single credit line in excess of 50%

 

The second tidbit I'm offering is the more murky factoid:  HELOC's with balances below a threshold of something like $30k are typically scored similarly to revolving accounts.  Higher balance HELOC's are evaluated similarly to installment loans.

 

Taking this information at face value, FICO will evaluate your accounts as having a revolving balance of $27k against total credit lines of $91k ($45 credit card/$46 HELOC).  That equates to an overall utilization of 29.7%.  So, potentially you're in the clear on the overall utilization front and it's likely your score is getting a hit from individual line utilization.

 

Note, however, this overall utilization doesn't leave much room for interim monthly balances which you pay in full each month (if that's a factor).  I might suggest that you provide at least nominal leeway for "breathing room" and target overall utilization of 28%.  This would require a one-time repayment of approx $1500, dropping you to $25.5k in balances.

 

-------------

 

I've addressed overall utilization; let's look at individual card utilization:  As I note, there's typically a pretty stiff score hit once any single account crosses the 50% utilization threshold.  With roughly 60% of your card lines in use, it's a good bet that 3 or more of your cards are key to keeping your score where it is.

 

Generally speaking, 50% is a minimum target for max utilization of any one revolver.  There are significant score gains for every 10% threshold below this (40%, 30%, etc.)  With the account balances you note, and the availability of the HELOC LOC, optimally you can reallocate so that all balances are under 30% utilization.

 

To do so, you simply apply the 28% suggested utilization target against each of the respective credit lines to arrive at a target balance after reallocation.  When everything is said and done, you would move $13k to the HELOC, leaving $12.5 on the cards (assuming you've repaid $1500 up front).  You'd establish a balance on each individual card that was approx 28% of it's respective limit.

 

-------------

 

I hope this discussion is clear and helpful.  I grasp the $1500 paydown may be a stretch. (Of course, to the extent that you pay additionally on your credit lines, that gets reduced.)  By all reports the 30% utilization threshold is significant (overall and, to a lesser extent, individually).  It's been suggested that fractional % pts are rounded up (29.2% becomes 30%).  Note, however, that there's some suggestion that the thresholds are "greater than", so 30% is in the same bandwidth as 25%, not 35%.

 

I'll look to reply to any questions you might have.

Thank you and yes this information is very helpful indeed. Each single revolver i have with high balances is driving the scores down i am sure. 

 

I do have around $3500 in usable cash to offset some of this. I was also considering clearing all the cards to zero balance still maintaining $47K credit line and putting $22K into the HELOC, That would bring me to just under 50% Utilization on a single credit line. This would definitely be the clean way to do it but only if it jumps my Fico above 680.

 

Either way the HELOC credit balance will  improve my over utilization ratio which should jump the score a little. I hope

 

 

 

 

Edited by LJS37

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17 hours ago, LJS37 said:

For complete clarity, Here is an outlook of the Revolving Lines. This may paint a better picture of what i am trying to do here, 

I do have a $3300 budget to attack some of these, 

 

Name Credit Line Balance % to Line
CC1 $3,500.00 $2,525.00 72.14
CC2 $9,000.00 $5,800.00 64.44
CC3 $4,500.00 $0.00 0.00
CC4 $5,000.00 $4,500.00 90.00
CC5 $2,000.00 $1,475.00 73.75
CC6 $3,500.00 $3,400.00 97.14
CC7 $5,000.00 $4,400.00 88.00
STORE 1 $1,000.00 $800.00 80.00
CC8 $700.00 $0.00 0.00
CC9 $1,200.00 $375.00 31.25
STORE 2 $6,900.00 $1,200.00 17.39
CC10 $4,000.00 $1,670.00 41.75
       
Totals $47,500.00 $26,845.00

56.52

 

Ok, sorry for the delay in response.  I needed to tackle a few tasks before focusing on this.

 

Thanks for the brilliant debt summary.  It's made it pretty easy to quantify a suggested debt reallocation.

 

The goal in the restructure is to reduce overall utilization below 30%, and to ensure that no individual balance is above 30%.   In addition, where possible, low balance accounts will be paid in full, to modestly reduce the % of lines in use (a definite goal identified by centex that is worth pursuing, subject to the first goal).

 

So, first, here are the repayments necessary to reduce all accounts to a target utilization of 28%:

 

Acct     Repaymt     New Bal    New %/Line

CC1        $1545          $  980          28.0%

CC2        $3280          $2520          28.0%

CC3         NO BALANCE                      

CC4        $3100          $1400          28.0%

CC5        $  915          $  560          28.0%

CC6        $2420          $  980          28.0%

CC7        $3000          $1400          28.0%

S-1         $  520          $  280          28.0%

CC8         NO BALANCE

CC9        $    39           $  336         28.0%

S-2          NO PMT      $1200         17.4%

CC10      $  550           $1120         28.0%

-----------------

TOTAL:  $15369

 

Now, tapping your  $48k HELOC and taking it to the 28% utilization target, would make $12869 available in funds.  The balance of the account paydowns, $2500, could be tapped from the $3500 in liquid resources you identify as being available.

 

When everything is tallied up after this debt reallocation, the numbers pan out as follows:

 

$10,776 in revolving account debt (23.3% utilization)

$12,869 HELOC balance (28.0% utilization)

Total "Revolving" debt:  $23,645 (25.6% utilization)

 

After the debt reallocation, you'll note that you have 3 accounts with relatively low balances remaining (< $600 each, total $1076).  If you're willing to allocate the full $3500 in resources that you identify as available, you can use the balance to pay off these 3 accounts, leaving you with 7 out of 12 accounts with balances.

 

Anecdotally (again, take with a sizable grain of salt), for scoring purposes it's best to have less than 1/2 of your revolvers reporting balances -- in other words, it's not a bad idea to ultimately target 5 or less.  However, for the purposes of your refinancing application, an improvement from 10 to 7 (out of 12) is a substantial improvement that will likely weigh in your favor.

 

Again, I trust this is helpful guidance.  I'll respond (eventually ;) ) to any questions.

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6 hours ago, hdporter said:

 

Ok, sorry for the delay in response.  I needed to tackle a few tasks before focusing on this.

 

Thanks for the brilliant debt summary.  It's made it pretty easy to quantify a suggested debt reallocation.

 

The goal in the restructure is to reduce overall utilization below 30%, and to ensure that no individual balance is above 30%.   In addition, where possible, low balance accounts will be paid in full, to modestly reduce the % of lines in use (a definite goal identified by centex that is worth pursuing, subject to the first goal).

 

So, first, here are the repayments necessary to reduce all accounts to a target utilization of 28%:

 

Acct     Repaymt     New Bal    New %/Line

CC1        $1545          $  980          28.0%

CC2        $3280          $2520          28.0%

CC3         NO BALANCE                      

CC4        $3100          $1400          28.0%

CC5        $  915          $  560          28.0%

CC6        $2420          $  980          28.0%

CC7        $3000          $1400          28.0%

S-1         $  520          $  280          28.0%

CC8         NO BALANCE

CC9        $    39           $  336         28.0%

S-2          NO PMT      $1200         17.4%

CC10      $  550           $1120         28.0%

-----------------

TOTAL:  $15369

 

Now, tapping your  $48k HELOC and taking it to the 28% utilization target, would make $12869 available in funds.  The balance of the account paydowns, $2500, could be tapped from the $3500 in liquid resources you identify as being available.

 

When everything is tallied up after this debt reallocation, the numbers pan out as follows:

 

$10,776 in revolving account debt (23.3% utilization)

$12,869 HELOC balance (28.0% utilization)

Total "Revolving" debt:  $23,645 (25.6% utilization)

 

After the debt reallocation, you'll note that you have 3 accounts with relatively low balances remaining (< $600 each, total $1076).  If you're willing to allocate the full $3500 in resources that you identify as available, you can use the balance to pay off these 3 accounts, leaving you with 7 out of 12 accounts with balances.

 

Anecdotally (again, take with a sizable grain of salt), for scoring purposes it's best to have less than 1/2 of your revolvers reporting balances -- in other words, it's not a bad idea to ultimately target 5 or less.  However, for the purposes of your refinancing application, an improvement from 10 to 7 (out of 12) is a substantial improvement that will likely weigh in your favor.

 

Again, I trust this is helpful guidance.  I'll respond (eventually ;) ) to any questions.

This is very comprehensive, Thanks for taking the time to go through this and summarize everything. This is a completely workable plan.  I can pay these small ones off quickly as you suggested but I will have to make some adjustments to my debt elimination efforts as i would prefer not to hold a balance against the house so i would likely prioritize repayment of the HELOC and then work on the higher balances on the revolving credit lines (Credit Cards) Then focus on the Car.

 

Hopefully these steps will be enough to raise the score above 680.

 

For anyone out there reading this.... Don't max you credit lines out like above or its going to hurt you in situations like these.  Control the spending and keep the utilization's low and avoid rolling multiple balances from cards into another via Balance transfer.

 

Thank You Again. I will let you know how this goes in the next 30/60 days

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I'm pleased this exercise has been helpful, LJS.  I'll keep my fingers crossed that it indeed yields a significant score boost. 

 

Just a reminder that the mortgage industry does not use FICO 8 scores.  Instead, the use the earlier CRA mortgage segment scores (which are FICO 2 - Experian, FICO 4 - TransUnion, and FICO 5 - Equifax).

 

I understand your desire, after refinancing, to prioritize clearance of the HELOC debt.  If your score subsequent to refinancing approaches 720, you might give consideration to applying for a credit card with a 0% rate on balance transfers (for at least a year, with a balance transfer fee of 3% or less).  This could give you a good opportunity to transfer out some of the HELOC debt early and save a few dollars as well.

 

For example, if you qualified for such a card and were assigned a $10k CL, then it could well be advised to transfer $4k over to this card from the HELOC.  You'll note that it would mean carrying a 40% bal/limit ratio at first.  Given that you aren't likely going to be applying for another mortgage anytime soon, you can afford to "loosen up" a tad.  Still, ultimately continue to strive to carry no more than 30% of any given line as a balance, with occasional exceptions as warranted (such as in this instance).

 

Best wishes!    - Harry

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