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Paying off credit cards and credit scores
Posted on 3/30/13 at 12:09 pm
Posted on 3/30/13 at 12:09 pm
I'm in the process of helping a family member pay off her credit cards so she can move on with her life, she has roughly 7 cards with about 18k spread across them.
I am going to just pay them off all at once for her but there is a catch, she needs to maintain a decent credit score to access equity in her house so she can pay me back some where down the road. The catch-22 is that she cannot consolidate using her equity because of the card balances she is carrying now.
I'm not here to discuss the risks I'm taking or her bad habits, I just want to know the best way to pay these off without sinking her credit even more(pay off all at once, a good chunk over a few months, close the accounts, close some of the accounts, leave 10 bucks on the cards).
I know nothing about this so any help will be appreciated.
I am going to just pay them off all at once for her but there is a catch, she needs to maintain a decent credit score to access equity in her house so she can pay me back some where down the road. The catch-22 is that she cannot consolidate using her equity because of the card balances she is carrying now.
I'm not here to discuss the risks I'm taking or her bad habits, I just want to know the best way to pay these off without sinking her credit even more(pay off all at once, a good chunk over a few months, close the accounts, close some of the accounts, leave 10 bucks on the cards).
I know nothing about this so any help will be appreciated.
5
Posted on 3/30/13 at 12:43 pm to LSUsmartass
Why do you think paying off her cards will damage her credit? 
FWIW if she has already racked up problems due to being late, that's a different matter entirely. Paying off the debt will obviously take care of paying outrageous interest fees but it will not remove a record of being late.
FWIW if she has already racked up problems due to being late, that's a different matter entirely. Paying off the debt will obviously take care of paying outrageous interest fees but it will not remove a record of being late.
Posted on 3/30/13 at 12:45 pm to foshizzle
No problems with being late i don't think, I've just always heard paying off cards and closing out the account will negatively impact credit
Posted on 3/30/13 at 1:05 pm to LSUsmartass
Paying them off will only have a positive effect. However, closing them will have a negative impact. 
Posted on 3/30/13 at 1:06 pm to LSUsmartass
Paying off the cards will not negatively impact the credit.
Closing the accounts might. The ideal situation here would be to pay off the debt, but keep the lines of credit open while simultaneously cutting up the cards so she is not tempted to use them.
Closing the accounts might. The ideal situation here would be to pay off the debt, but keep the lines of credit open while simultaneously cutting up the cards so she is not tempted to use them.
Posted on 3/30/13 at 1:42 pm to LSUsmartass
Having a high ratio of credit used vs. credit available will ding her. If she hasn't been late on anything, that is probably a concern. Paying it off obviously helps here.
However, closing an account has the same effect - it reduces the amount available. In addition to that, it helps to have an account that's been open for a long time, you probably don't want to close that one.
The best thing of all is pay off the debt in full but keep the accounts open and don't charge them up again.
The thing is that these things aren't really huge dings on a score though. Nothing at all like being late 30 days or more. Paying off a card does not fix that, only time will.
I highly recommended obtaining a copy of her credit report (you don't need the score) and make sure you know whether that is the case. If you're paying the money and expecting her to be able to repay you by tapping her house you are entitled to see it. If she has multiple late payments on her report she will not be able to borrow against equity anyway, and you aren't getting your money back anytime soon if ever.
However, closing an account has the same effect - it reduces the amount available. In addition to that, it helps to have an account that's been open for a long time, you probably don't want to close that one.
The best thing of all is pay off the debt in full but keep the accounts open and don't charge them up again.
The thing is that these things aren't really huge dings on a score though. Nothing at all like being late 30 days or more. Paying off a card does not fix that, only time will.
I highly recommended obtaining a copy of her credit report (you don't need the score) and make sure you know whether that is the case. If you're paying the money and expecting her to be able to repay you by tapping her house you are entitled to see it. If she has multiple late payments on her report she will not be able to borrow against equity anyway, and you aren't getting your money back anytime soon if ever.
Posted on 3/30/13 at 3:50 pm to foshizzle
Thanks, appreciate the info and advice
Posted on 3/30/13 at 6:31 pm to LSUsmartass
I just paid off a card in full that had a history of late payments. My fico score jumped 25 points when the new balance was reported. I'd say just pay them off ASAP.
Posted on 3/30/13 at 7:38 pm to LSUsmartass
Pull her credit yourself before you do anything to make she she didn't "forget" for she was late once or twice. I'd also meet with the bank and make sure paying the debt off will successfully allow her to refinance or take a heloc, which ever she's doing.
Posted on 3/30/13 at 8:08 pm to TigerDeBaiter
quote:
Pull her credit yourself before you do anything to make she she didn't "forget" for she was late once or twice. I'd also meet with the bank and make sure paying the debt off will successfully allow her to refinance or take a heloc, which ever she's doing.
F*cking this.
Posted on 3/30/13 at 11:25 pm to LSUsmartass
Pay them off, don't close any, have her use the cards LIGHTLY and pay them off in full each month. In your best interest you should have her quit claim you onto the property just in case things go south. I hope this all works out for you!
This post was edited on 3/30/13 at 11:28 pm
Posted on 3/31/13 at 1:56 pm to LSUsmartass
paying the credit cards to zero will, based on my experience will have a negative impact on her credit score.I would pay the credit cards down to 5 percent and see what that does to her credit score.
Posted on 4/1/13 at 11:00 am to novabill
quote:
paying the credit cards to zero will, based on my experience will have a negative impact on her credit score
If paying off credit cards has a negative effect on your score, then the system is BS.
Posted on 4/1/13 at 12:53 pm to LSUsmartass
You can get a copy of all 3 credit reports once a year for free here:
LINK
Don't close the accounts out as this will have a negative impact on her score. Also, it might work out best to make 2 payments on the cards to boost the score. Pay down the utilization on each card to below 50% the first month and then the other balance the following month.
Also, another idea that may be a benefit if there are late charges on her accounts, is for you to take the 18K that you are going to use to pay the cards off until she can tap into her equity, would be to take the money and place it into a separate savings account and allow the bank to do a "secure" loan in her name utilizing that account so that she can start to rebuild her credit. She can still take the equity and pay you back and continue to make a 3-6 monthly payments on that bank loan and then go in and have then to pay the loan off with the "secured" funds.
LINK
Don't close the accounts out as this will have a negative impact on her score. Also, it might work out best to make 2 payments on the cards to boost the score. Pay down the utilization on each card to below 50% the first month and then the other balance the following month.
Also, another idea that may be a benefit if there are late charges on her accounts, is for you to take the 18K that you are going to use to pay the cards off until she can tap into her equity, would be to take the money and place it into a separate savings account and allow the bank to do a "secure" loan in her name utilizing that account so that she can start to rebuild her credit. She can still take the equity and pay you back and continue to make a 3-6 monthly payments on that bank loan and then go in and have then to pay the loan off with the "secured" funds.
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