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Message
Paying off credit cards with high utilization
Posted on 6/23/14 at 9:46 am
Posted on 6/23/14 at 9:46 am
I'm wondering what would improve my credit score the quickest.
Here is the situation. I have several credit cards with high utilization (over 90% each). My total credit utilization (i.e. all cards) is about 45%.
Would my score improve faster if I did the Dave Ramsey method (pay off lowest balance completely first, then move on to next), or should I focus on paying each card down to around 30% instead?
All cards are going to get paid off, but I was hoping to maximize my score in the process since we are considering buying a house sometime in the future.
Here is the situation. I have several credit cards with high utilization (over 90% each). My total credit utilization (i.e. all cards) is about 45%.
Would my score improve faster if I did the Dave Ramsey method (pay off lowest balance completely first, then move on to next), or should I focus on paying each card down to around 30% instead?
All cards are going to get paid off, but I was hoping to maximize my score in the process since we are considering buying a house sometime in the future.
2
Posted on 6/23/14 at 9:49 am to AnonymousTiger
The utilization score is tallied using your usage across all your credit lines, so what goes first doesn't matter since it's fungible from that perspective.
However, from a particular bank's perspective, the bank(s) you're holding 90% on may not enjoy that exposure with you, and may take steps to reduce or eliminate that risk. Also, another bank looking at your report in detail isn't going to like seeing any individual line showing high risk like that.
Assuming interest is relatively even, i'd get the high usage lines down first.
However, from a particular bank's perspective, the bank(s) you're holding 90% on may not enjoy that exposure with you, and may take steps to reduce or eliminate that risk. Also, another bank looking at your report in detail isn't going to like seeing any individual line showing high risk like that.
Assuming interest is relatively even, i'd get the high usage lines down first.
This post was edited on 6/23/14 at 9:51 am
Posted on 6/23/14 at 9:55 am to Teddy Ruxpin
The interest is pretty even on each. I thought that individual high utilization was actually figured in to the score, as well as total, but I'm glad to hear that it isn't.
Posted on 6/23/14 at 9:58 am to AnonymousTiger
In your situation it wouldnt really matter how it's scored, as a mortgage is a financial prostate exam, and your biggest issue is the high balance/high risk accounts.
Also, the Dave Ramsey method has little to do with credit scoring or anything financial really. It's just a mental game to help people pay off debt.
Also, the Dave Ramsey method has little to do with credit scoring or anything financial really. It's just a mental game to help people pay off debt.
This post was edited on 6/23/14 at 10:00 am
Posted on 6/23/14 at 10:36 am to AnonymousTiger
quote:
I thought that individual high utilization was actually figured in to the score, as well as total, but I'm glad to hear that it isn't.
Nope, Teddy is 100% right. They look at the utilization of your whole pool. I would also follow Teddy's advice of knocking down those 90%'ers before Bank xyz cancels your account and then you'll really look bad.
Posted on 6/23/14 at 10:59 am to htownjeep
Going to start paying them down asap. FWIW, I always pay more than the minimal balance on each card each month. Hopefully that, along with my perfect paying record, will keep them from canceling them on me out of the blue.
I've been doing the Dave Ramsey plan, half arse at least. Never taken his classes, but I have been paying the cards in a method similar to his snowball philosophy. It's helped some, but now I'm going to start getting my high limits down to get my utilization under control.
I've been doing the Dave Ramsey plan, half arse at least. Never taken his classes, but I have been paying the cards in a method similar to his snowball philosophy. It's helped some, but now I'm going to start getting my high limits down to get my utilization under control.
This post was edited on 6/23/14 at 11:01 am
Posted on 6/23/14 at 11:11 am to AnonymousTiger
Pay off the smallest one and then when you pay that
one off start paying off the next smallest. Forget about
utilization scores, credit scores, FICO scores forget about all
that crap just start paying off the CC cards.
one off start paying off the next smallest. Forget about
utilization scores, credit scores, FICO scores forget about all
that crap just start paying off the CC cards.
Posted on 6/23/14 at 1:34 pm to AnonymousTiger
Dave Ramsey would also tell you to cut the cards up and stop using them. That would keep your utilization rate pretty low.
Posted on 6/23/14 at 1:37 pm to Scooby
Please don't quote Dave Ramsey on the MTB. We are better than that.
Posted on 6/23/14 at 1:51 pm to Scooby
quote:
Dave Ramsey would also tell you to cut the cards up and stop using them. That would keep your utilization rate pretty low.
I don't use the cards, haven't in a while. I got in to this situation during a move between jobs that put me in a bind. I've climbed out of the hole most of the way, but was just wondering if paying the rest off in a different pattern could positively affect my score quicker.
Posted on 6/23/14 at 1:54 pm to lynxcat
quote:
Please don't quote Dave Ramsey on the MTB. We are better than that.
I've lurked here long enough to know that. His name had already been mentioned a few times, so i threw that in.
Posted on 6/23/14 at 1:55 pm to AnonymousTiger
quote:
I don't use the cards, haven't in a while.
awesome
Posted on 6/23/14 at 2:01 pm to AnonymousTiger
quote:
I don't use the cards
There's nothing wrong with using them. The key is paying them off each month.
Posted on 6/23/14 at 4:37 pm to Double Oh
quote:
Pay off the smallest one and then when you pay that
one off start paying off the next smallest. Forget about
utilization scores, credit scores, FICO scores forget about all
that crap just start paying off the CC cards.
Uhhhhhh, you serious clark?
Posted on 6/23/14 at 6:22 pm to htownjeep
Jeep, just pay off the cards I don't care how you do it.
No clue why everyone is so concerned about scores.
No clue why everyone is so concerned about scores.
Posted on 6/23/14 at 7:58 pm to Double Oh
quote:
No clue why everyone is so concerned about scores.
Because if you have a shitty score, you get reamed in the arse with interest on big ticket items?
Posted on 6/23/14 at 9:01 pm to AnonymousTiger
I doubt any issuer is going to cancel on you so long as you pay on time every month. You're a goldmine for them. Just make absolutely damn sure you pay on time, if you are even one day late it won't ding your credit rating (you have to be 30 days late for that) but the issuer will have every excuse to jack up the rate so high it will make you afraid to open the mail. Pay a week early if you can just to be sure.
Get the utilization on one card down a bit to, say, 60% or so. Yes, I'm pulling that number out of my arse, it's the internet, but reduce it appreciably. Then call up the issuer and ask for a rate reduction. Provided everything is still in order there's a decent chance you'll get it.
You don't want to do this just now b/c if you do and your utilization is 90% the issuer may think you're just desperate and on the verge of bankruptcy. Cut it back somewhat first though and you've demonstrated a) you aren't quite that risky and b) they'd better grant you a reduction or risk losing the golden goose.
Then pick another card and repeat - only this time you can cautiously put some charges back on card #1 to help you pay down the second card faster.
When you've reduced overall utilization enough you'll start getting offers to do balance transfers for lower rates. Read the fine print on the percentage fee they charge but it will likely still be worth it.
Get the utilization on one card down a bit to, say, 60% or so. Yes, I'm pulling that number out of my arse, it's the internet, but reduce it appreciably. Then call up the issuer and ask for a rate reduction. Provided everything is still in order there's a decent chance you'll get it.
You don't want to do this just now b/c if you do and your utilization is 90% the issuer may think you're just desperate and on the verge of bankruptcy. Cut it back somewhat first though and you've demonstrated a) you aren't quite that risky and b) they'd better grant you a reduction or risk losing the golden goose.
Then pick another card and repeat - only this time you can cautiously put some charges back on card #1 to help you pay down the second card faster.
When you've reduced overall utilization enough you'll start getting offers to do balance transfers for lower rates. Read the fine print on the percentage fee they charge but it will likely still be worth it.
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