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Hello! I hope this is the correct forum to post this in. I have approximately $6,000 owed on credit cards. Several months ago I was demoted to part time at my job due to business being so slow. Then about a month ago I lost my job alltogether. Through the process I maxed out several of the cards, and was late on a few payments (though I have caught up on them whenever possible, I did have a few that hit 30 days late/were over limit). I also decided to go back to school and had several credit inquiries from loan companies on my credit report. Alltogether my credit score fell from 660 to 603 in a matter of a few months. I was recently hired by a great company and have received a sign on bonus of $2500. I intend to use the entire $2500 toward these credit cards. My question is, how can I use it in a manner that might improve my credit score a little bit faster? My cards are as follows:
Card 1- low interest, 2,500 limit, maxed out
Card 2- high interest, 300 limit, 250 charged
Card 3- medium interest, 500 limit, maxed out
Card 4- low interest, 1000 limit, 900 charged
Card 5- high interest 2000 limit, 500 charged
Card 6- very LOW interest, 2000 limit, 1400 charged.
I want to get rid of the ones with the high interest first if I can- I was thinking pay off (AND CUT UP!!!) Card 2, Card 3, Card 4 and Card 5 (total aprox $2150) and then throw those last few hundred at one of the others. Would this be wise in terms of trying to raise my credit score? Would this even likely have an impact? My current overall credit use is around 65%, so I figure it should drop to the 30% range immediately after paying these. Will that have an impact? I will of course be able to continue making higher than minimum payments on Cards 1 and 6 with my new job as well. I would really like to raise my score back to the 650 range by this May if possible. What other steps can I take? Thanks!
As long as none of the cards is over the limit, how you apply the payments won't impact your score. All it looks at is the overall usage. Applying the money as you suggest makes sense.
Freeing up credit and lowering or eliminating minimum monthly payments can have a significant impact. Making a 50 point swing in your FICO in just a few months is a stretch, but if you make significant strides toward reducing your balances and don't have anything negative hit your report you might have a shot.
As duster said, since none of them are over their limits, it won't matter that much from a debt utilization stand point.
However, it does make sense to follow your plan as it pays off the cards with the 4 highest rates first. I would throw the rest at card 1 and continue to work at that (while making minimums on #6) to minimize interest paid.
Ok...i'm going from a point of SCORE MAXIMIZATION NOT DOLLAR MAXIMIZATION which are very different strategies. This will also mimic what I told another poster in a different thread about paying off cards.
First some background. Obviously total debt utilization is a very big deal however what most people don't realize is that your score to a lesser degree is based on the number of inquiries you've had in the past 2 years, the number of delinquents you've had in the past two years and some other things. The impact of all of these lessens over time. What also affects your score but does not "decrease" over time is the number of accounts you have with balances. Pay off a balance on your card and free up a trade line which looks better than having multiple trade lines each reporting a balance but with the same overall debt utilization.
First , again coming from a score maximization standpoint, take the $2500 and and pay off cards 2, 3,4 and 5 for a total of $2150. This will leave you with some cash to tackle the 1st card which you will apply the rest to. Having all these newly freed tradelines will help much in your favor.
Next subscribe to a Credit monitoring service or utilize your existing ones to see when your tradelines have reported that you've paid off the balances. You can get a current time credit report with the actual scores but that's somewhat silly because we need to know when the lines are reporting empty. This can take a month or two so be patient.
After your tradelines have reported empty (all of the ones you've paid off) search on google and/or creditboards.com and see which cards you have where you can ask for a CLI (credit line increase) by way of a soft pull. ONLY do soft pulls and make sure your research reflects this. This can take a little bit of time but it's very worth it. As you increase your credit limits you decrease your debt utilization which increases your score but you may be denied (hence avoiding the hard pull).
Lastly tackle those lates. Note this part is only for the extreme and i offer no moral guidance. i'm just reporting the availability of this: On the credit report take a look at which lates are reporting. Ask the credit bureau to verify the information relating to these lates, make sure the name, address, account numbers everything are reporting accurately. If not, verify it. You can do the same for any collections you have on your account but DO NOT do this for any unpaid collections or collections that have been on your report for anything longer than maybe 6 to 6 1/2 years because these will "fall off" of your report soon and won't make a difference. If you "verify" these accounts then they might change the information on them and they will stay on your file for another 7 years. Not good! Best case scenario, after disputing the late information is that they will not have enough information on their file and remove the lates entirely. Almost best case is that some negative information is removed from one or two files but not the others. Worst case is that the info stays because it was verified, but hey if it was legit then not much you can expect anyway. Again I don't advocate lying at all but it never hurts to make sure everything is legit.
Obviously, since you had to rack up these credit cards to survive, you don't have an emergency fund.
My suggestion would be to take the $2150 you've already mentioned and pay off 2,3,4 and 5, and then put the other $350ish into an emergency fund, so you at least have a small amount.
If the interest rates on the remaining cards is over 10%, throw everything else you can at them. If they are 5% to 10%, I would save up an emergency fund of $500 first, then throw everything you can at them. If they are under 5%, I would save up an emergency fund of 3 month's worth of expenses before working on the cards.
You don't want to be paying off a 5% card now, and have no emergency fund, and end up having to charge something onto a 20% card later.
First , again coming from a score maximization standpoint, take the $2500 and and pay off cards 2, 3,4 and 5 for a total of $2150. This will leave you with some cash to tackle the 1st card which you will apply the rest to.
Which, as it turns out, is the same strategy as the dollar-maximization route.
Which, as it turns out, is the same strategy as the dollar-maximization route.
Without the specifics we won't really know. Card one @ 5% Interest at minimum payments = about $798 bucks paid (min amount). Card 5 @ 20% interest w/ $15 min payment = about $239 in interest paid. Dollar max should be looking at the interest paid not interest rate.
Without the specifics we won't really know. Card one @ 5% Interest at minimum payments = about $798 bucks paid (min amount). Card 5 @ 20% interest w/ $15 min payment = about $239 in interest paid. Dollar max should be looking at the interest paid not interest rate.
Huh? Maybe I'm having a brain fart and overlooking something, but I'm not following.
If you only have a given amount to throw at multiple debts with differing interest rates, how are you not best served by putting it toward whichever one has the highest rate? (assuming minimum payments are being made on the rest so as not to incur any fees/penalties)
As in, if you found $1000 and were to apply it - it's better to prevent $1000 from accumulating interest on a 20% loan (save $200) than to prevent $1000 from accumulating interest on a 5% loan (save $50).
Of course a large enough balance difference between loans outweighs a rate difference for total interest paid over the entire life (at minimum payments). But that's a whole separate issue.
Thank you for the advice! I think I'm going to proceed with my original plan of paying off cards 2-5 and just be aggressive with paying down 1 and 6. Although I was 30 days late a few times it hasn't been reflected on my credit report from what I can see. I do have a whole bunch of card over limit notices (i.e. when interest came in and pushed my card balance up, but each were paid as soon as I could). I also have a 60 day late notice from 55 months ago that's still on there. I was thinking I might pay the balance on that card off and write them a letter requesting that they remove it from my record based on customer loyalty and good present credit standing? I've read some success stories in asking nicely that way before. I do have a credit-monitoring subscription which has been depressing to watch over the last few months lol. I also have a few installment loans (car loan, prior student loan) which I have been sure to keep in good standing. I hope this has an impact- seems like you can work to build your credit score for years and a matter of a few months can destroy it completely.
I'd say your plan of paying off 2,3,4,5 -- is good. Gets rid of four balances, with the highest interests, frees up cash, lowers you debt-to-limit ratio. What's no to love about that.
I, however would NOT close any of the cards, at least not right now. Sit tight for a few months, Then look at how closing the newest card(s) you have would affect you length of credit history and you credit utilization ratio, while you still have those other two balances.
In general, I tend not to favor closing accounts, especially in your situation.
Now if a person with 30 years of credit history gets a new card for a credit deal, uses is for a year and closes it that's a totally different story. One card you've had for a year, that may not even be your highest limit card -- wouldn't affect your score that much, in relation to the rest of your history. But that's not your case.
IF YOU CLOSE 2-through-5 too soon (especially before the other's are paid off) that would leave you with....
Card 1- low interest, 2,500 limit, maxed out
Card 6- very LOW interest, 2000 limit, 1400 charged.
...uh, not good. Waaay too much of your available credit being used.
At the LEAST I'd keep the three cards with limits of 2,000 and above
Card 1- low interest, 2,500 limit, maxed out
Card 5- high interest 2000 limit, 500 charged
Card 6- very LOW interest, 2000 limit, 1400 charged.
But like I said for right now, I'd just pay them off, and consider which two -- to MAYBE close.....later.
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