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How to pay off/down CCs to get most benefit on FICO/other scores?


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Hi,

I am hoping for some help in figuring out how to maximize the positive FICO impact while paying down my credit cards. I've been doing a lot of reading on the site and I've already learned so much but also found there are so many intricacies when dealing with credit that I know even less than I thought I did. I couldn't seem to find this info (if I just missed it due to poor search operators, please let me know.)

 

Here are the basics:
We have a few credit card accounts between my spouse and I (each an AU on all accts). I was fortunate in that my dad got me put on as an AU on their CCs as a young teen to help me begin to build credit & once that converted to my own CCS w/ those same companies, it made my AAOA quite good for my age. So with that in mind I have two accounts that are over 25 years, another that's probably 8 years. The last is probably 5 years. I think we may have a couple of store cards that are 5-8 years which we don't use much (as in hardly ever with prompt monthly payoff...they were recommended by professional credit counselor around 10 years ago). No late payments in 7+ years (except for one about 2-3 years ago when I was in hospital but it didn't get to 30 days late and I was told it wouldn't be reported). Everything is since set on a minimum autopay of some sort so that never happens again (and I pay more when possible). Caused me a major panic attack on top of the other med issues.

 

Only two cards currently have a balance: one of the 25 year accts and the 5 year. These are also the accts w/ highest limits. The other of the two oldest was paid off a few years ago now and has remained PIF each month. I don't know if it matters but total utilization is around $18k out of over $50K total available (might be as high as $60K+ depending on how AU are treated with spouses). Current FICO is 785 and has hovered between 780 and 789 for awhile. 

 

I'm not trying to play short term games with my credit but I do want to maximize the benefit of paying down/off the two cards as much as I'm able. It just seems the smart thing to do. One doesn't necessarily get the chance to pay down/off credit cards every day.

 

I used to hear that one should pay over many months for the best credit impact. But then, I began to read that this was a myth because the banks simply benefit from us paying the interest for a longer time. So, I don't know what's best. As I see it, I have roughly three main choices (pls suggest any others):

1) Pay in full or as much as possible ASAP (or nearly, perhaps using the $2 rule)
2) Pay in full or as much as possible over a couple or three months (possibly even breaking it up into multiple payments per month over that time)
3) Pay in full or as much as possible over 3+ months.

 

I've heard that the likely best option is #1, just to stop paying the interest ASAP. But I've also learned that not everyone is as credit savvy as those in this community so I wanted to double check and see what you think would be best.

 

I really don't want to waste this opportunity - I want to make the most of it. I've seem some of those posts like "I finally paid off my CC to $0 and my score dropped 50 points!". That would make me really sad. And frustrated. :( Any info would be amazing. I've been reading as much as I can but am feeling a little overwhelmed and was hoping for some pointers and advice. Thanks so, so much. I'm hoping to learn more from this community.

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Those that see drops after paying everything off typically violated the AZEO rule of thumb.  There is a reason seasoned credit holders recommend keeping some nominal balance on ONE card.  They still are not paying interest though. 

 

I toyed with it earlier in the year because I wanted to see if AZEO would recognize just a balance on the AXP Plat.  It didn't.  I dropped some nominal number of points...may have been a total of 25 but there was also another change on there, specifically a new account or inquiry (it was around the time I got the latest toy).  At the time of my experiment, I was at an 850/850.  Once I let a small balance report, I was back to 840, with the other ten points being related to whatever the other change was. 

 

Age of the account has no relationship to how the balance is viewed.  In other words, a $50 balance on a five-year old card is just the same as on a thirty-year old card, all things being equal otherwise.  Multiple balances CAN present score issues.  The scoring algorithms tend to look not just at overall utilization but also the ratio of cards to cards with a balance.  Someone with three accounts and who has two cards with a balance (no matter the amount) will be hit harder, in general, than the consumer with twenty lines that are open an active but with the same two cards showing a balance.  The seasoned consumer will STILL be hit harder than the one with twenty accounts but who follows AZEO.  Not a huge hit, but a small hit nonetheless. 

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I think you have an $18,000 balance split between two cards and have been paying on that amount for more than one billing cycle.  Give the credit card companies the least amount of interest.  Pay off both of them in full and there will still probably be a residual balance the next month equal to the accrued interest.  Example - you have a $10,000 statement balance on July 1.  You pay in full on July 10.  Your next statement would be for a a few dollars for the interest that accrued on the $10,000 between 7/1 and 7/10.

 

You can get on the AZEO (All Zero Except One) train by paying in both full online, then push a check one of the credit card companies for $20 more than you estimate the accrued interest to be for that card.  Then the following billing cycle will show one card at 0 on your credit reports, even though you have a negative balance with them, and the other card will show a small balance.

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Honestly you should do whatever causes you to incur the least amount of interest, score be damned.  Unless you are buying a home in the next 60 days, you can always tweak the utilization a couple of months ahead of time to max out your score prior to going for the mortgage, but you'll never recover the cash wasted on interest expenses. 

 

If you're that paranoid or need to feel a warm and fuzzy let a balance report on a card that currently has a $0 balance while you pay off the ones you are paying interest on, but please for the love of god don't flush money down the drain chasing something that isn't important.

 

 

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