A question for the experts: I currently have >100K of credit card debt. I will shortly receive a payment of about $50K which I will use to pay down my debt, but I am wondering what the best way to pay it down is to maximise FICO score impact. In other words, assume I have 5 cards, all with maxed out $20K limits. Do I pay off 2 cards completely, or do i pay all five down 50%? Which will have a better impact on my fico socres? thanks!
As long as all $50k goes towards all revolving debt, I would pay down the HIGHEST RATE with the greatest amount possible. For example: $20k at 20% $20k at 14% $5k at 9.9% $5k at 7.9% Your overall utilizations will still go down, but now you're greatly reducing your overall interest you're paying.
I appreciate the advice, and under normal circumstances I would do just that, in terms of paying down highest APR first. however, my intent is to pay down debt so that i can get my scores high enough to do a refi on my home, and roll the balance of the debt into my home so that it is deductible. Therefore, my question remains: what is the best thing to do from a purely FICO standpoint. Thanks for your help!
Oh, I forgot -- my scores are all in the 650 range, and need to be at 680 to pull off the refi. Score simulators all say i will get there easily, but I don't want to pay off $50 K and not get the boost i need
I haven't paid $50k off, but I've had some experience paying off about $18k in about a year. Here's what I've found - and of course, YMMV. First, any card over 50% is costing you points. You're probably not going to get many points on just paying 50%. I suggest you think about getting to certain plateaus, like 49%, 39%, etc. There is a slide w/FICO score criteria that shows the percentages and points associated. http://www.ftc.gov/bcp/creditscoring/present/sld008.htm They may not use the exact same specs, but it shows the following values: 50-100%: -18 41-50% -10 31-40% -3 16-30% +5 0-15% +15 In theory, the max penalty is 33 points. I think it's closer to 75-100 points. You can see my scores and the main reason is the balances were paid off. The other thing you need to know is that your balances much longer to appear and get counted in your score than you would like. I had one CC that took THREE MONTHS to show the paid off balance. And please don't make the mistake I did of disputing a good TL for the correct balance - I'm now missing a good $5k CL w/no balance. AARRGHH! Bottom line - real gains in your score will cost more than you're putting down and take longer than you'd like. Ain't no instant cures in this game. I realize this doesn't answer your question, but with those kinds of balances I'd be on the phone once a week attempting to get my APR lowered. I'd also be playing BT games, the interest can be substantial.
