I am planning to buy a house on my own hopfully in about a year and a half or so from now. My current Fico score is about 663. It has been as high as 719 last June. It has went down as the balance on my primary card has increased. I currently have $12,000.00 to pay off bills. How should I distribute the money so that it will most positively effect my credit scores and put me in the best position for lenders? Primary Credit Card- $11,400. 16% $15,500. CL. Dept Store Credit Card- $800. 20% $1,500. CL. Electronics Store Credit Card- $1,100. 0% This is my only inquiry. $1,500. CL Car Payment- $265. 7% 31 payments left, $7,000. payoff. I plan on paying off my primary card completely and using the $600. to beef up my checking account, which it could really use. I could then use the extra $350.-$400. a month that I save by not having a CC payment and use it to make much larger payments on my highest interest dept. store account paying it off, then pay off the 0% card. I could then aggresively move to pay off the car which would be necessary in order to buy a house on my own. Im glad I bought a Toyota! I expect the car to have less then 50,000 miles on it when I pay it off. I have no derogatory items on any of my reports that I am aware of. I also havent had a late payment on anything in over 5 years. Would I be better off completly paying off the Dept. store card and paying off almost all of the primary card? Or should I pay off both of the Dept. store cards and have a primary CC balance of $1,300.? I wouldnt think that paying off the car would have any benefits. Any idea what impact paying off these debts will have on my immediate credit score?
There are a couple of scenarios here you could take; but I am going on the premise that raising your credit score is the priority. So, with $12,000 to work with, I recommend the following approach: 1) Pay $7,000 on your primary CC, this will take your balance to below 30% utilization, and have a great impact on your credit score, 2) Pay $800 on department store CC, the interest rate on this card is killing you. 3) Pay $700 on electronics store CC, again this will bring you under 30% utilization. 4) I would not pay off the car loan, just make sure you continue to make payments on time. This leaves you with $3,500 to put in your account. If you are looking for a mortgage, then I would take $2,000 and open a savings or money market account. A "savings" type of account adds to your image as financially sound. Check your bank's rates, but you may want to look at ING Orange accounts for a fairly good interest rate on savings. As for the balances on your accounts, I would make only the minimum payments on the electronics store CC, as you are getting 0% interest. Take the bulk of your normal "payment" money, and use it to pay down the higher interest CC. Keep this up until either the 0% interest rate expires, or you have paid off the CC. It would be ideal to have the primary CC state $0.00 balance at time of mortgage application. Also, since you are looking to purchase a home, make sure you budget monies out of your income to put into savings for both deposit and fees that come up during the home buying experience. You will need a "slush fund" for all the expenses that come up. If you follow the above, you should find a dramatic increase in your FICO score. Credit utilization (% of credit used divided by credit available) is 30% of your FICO score, only negative information has a higher effect on your credit score.
Paying off the car wont change a whole lot on your score. If it were me and I was in your position, I would pay $9,400.00 on the P.C. Payoff the dept card and electronics card, depending on how long you have a 0% rate on there for. If it's for the life of the balance, or if you can make the monthly payments before that offer expires, then I would put that on the P.C. instead. But thats just me. You're score will more than likely gradually go up over a couple of months, due to the debt-income ratio has gone down has you have paid off a large amount of debt.
