Paying off 3 credit cards and my car!

[tfoley427]

Hi!

I have 3 credit cards right now, $923 ($1300), $1230($1700), $2685($3,000) balance (limit) and a car payment $8,324. I am in a position right now to pay everything off completely. Is this going to hurt my credit score by paying off everything all at once? I am looking at buying a house in the coming months, and want to have abs. no debt on my report when we're trying to get pre-approved. If anyyyyyone could give me a hand it would be GREATLY appreciated!!

 

[wdwfan16]

Hi!

I have 3 credit cards right now, $923 ($1300), $1230($1700), $2685($3,000) balance (limit) and a car payment $8,324. I am in a position right now to pay everything off completely. Is this going to hurt my credit score by paying off everything all at once? I am looking at buying a house in the coming months, and want to have abs. no debt on my report when we're trying to get pre-approved. If anyyyyyone could give me a hand it would be GREATLY appreciated!!

I would pay off all three credit cards but keep the car payment. You want to show that you have a history of paying on time. The car payment will show that and should have the lowest interest rate.

 

[prncess674]

I would pay off all three credit cards but keep the car payment. You want to show that you have a history of paying on time. The car payment will show that and should have the lowest interest rate.

She can show a history of paying on time by making a few small purchases on one of the credit cards and paying it off in full each month there by not incurring any interest charges.

My other question is since you are looking for pre approval do you have a down payment set aside even if it is minimal. The bank is going to want to see some cash reserve for closing costs, etc. If paying off the car leaves you with $0 in savings then not paying off the car may be wise.

 

[coupon2010]

The best plan is to pay off your car completely so that your debt to income ration improves. The pymt hx of your car will still show up on your credit report. I would pay down your credit cards but dont pay them off completely. It is best when you are using less than 20-30% of the total credit extended.

Lets say you have a card with a $1000.00 limit. Carry a balance of no more that 20% so in this case $200.00.

Pay down each credit card as follows:
Total balance of card 1: $260
Total balance of card 2: $340
Total balace of card 3: $600

So pay off your car and the credits cards so that the balances reflect what I have listed. They want to see that you can pay bills on a scheduled and consistent basis If you are paying 3 credit cards on a regular basis and you have low balances, it shows that you are a responsible credit user.

It is tempting to pay them off completely but then there will be no building of your pymt histrory. Use the cash left over for any unforseen expences you might run into when you buy your house. God forbid you need a new frig or your plumbing needs fixing. You can use your nice cash cushion to pay for these items instead of using a credit card.

The optimun credit score is actually about a 720. This is the magic number. Some people think an 800 is best but this is a common misconception. A score of 800 usually indicates that the person has credit cards that they barely use at all and/or have dormant accounts. This high credit score may actually work against them.

So keep about 3 credits cards with low balances, pay them regularly and beef up your savings account.

Do you have any collections on your credit reports or R9s. Let me know. I have a trick for earsing these completely from your credit report--but don't every pay these negative items off without using my trick. If you pay these off, the companies will refuse to remove them. They pretty much mess up your credit for 7 yrs and they dont care at all about you once you pay these items off. You lose all of your leverage once you pay them off-be warned!!! If you are interested I will post my trick.

 

[prncess674]

The best plan is to pay off your car completely so that your debt to income ration improves. The pymt hx of your car will still show up on your credit report. I would pay down your credit cards but dont pay them off completely. It is best when you are using less than 20-30% of the total credit extended.

Lets say you have a card with a $1000.00 limit. Carry a balance of no more that 20% so in this case $200.00.

Pay down each credit card as follows:
Total balance of card 1: $260
Total balance of card 2: $340
Total balace of card 3: $600

So pay off your car and the credits cards so that the balances reflect what I have listed. They want to see that you can pay bills on a scheduled and consistent basis If you are paying 3 credit cards on a regular basis and you have low balances, it shows that you are a responsible credit user.

It is tempting to pay them off completely but then there will be no building of your pymt histrory. Use the cash left over for any unforseen expences you might run into when you buy your house. God forbid you need a new frig or your plumbing needs fixing. You can use your nice cash cushion to pay for these items instead of using a credit card.



So keep about 3 credits cards with low balances, pay them regularly and beef up your savings account.

Do you have any collections on your credit reports or R9s. Let me know. I have a trick for earsing these completely from your credit report--but don't every pay these negative items off without using my trick. If you pay these off, the companies will refuse to remove them. They pretty much mess up your credit for 7 yrs and they dont care at all about you once you pay these items off. You lose all of your leverage once you pay them off-be warned!!! If you are interested I will post my trick.

This is bad advice. She has credit history and paying off the cards is not a bad thing, throwing away money on interest is crazy talk. Why in the world would you pay off a low interest car loan and not pay off high interest credit card debt.

The idea of credit ratio is they don't want to see MORE THAN 20-30% useage. Having a lower ratio is a good thing! She can show payment history by continuing to make timely payments on a low interest car loan.

The optimun credit score is actually about a 720. This is the magic number. Some people think an 800 is best but this is a common misconception. A score of 800 usually indicates that the person has credit cards that they barely use at all and/or have dormant accounts. This high credit score may actually work against them.

Please state one reputable source. This is just crazy talk.

 

[tfoley427]

We have around 15-25,000 for a down payment.

 

[soonerfan2008]

How long have you had the car loan? If it is not a brand new car, you have already established a payment history.

I don't see a single reason NOT to pay off everything unless doing so would take away fund from your down payment or wipe out every bit of savings you have.

 

[prncess674]

OP,

It sounds like you are in good financial shape. Have you run your credit score recently? Sounds like you definitely have the money to pay off those high interest credit cards. You may want to hold off on repaying the car loan till you close on the house just to have a safety net in case of an unexpected home expense. Do you have a emergency fund/savings account outside of the money ear marked for the downpayment? Moving in to a new larger place can be an expensive proposition. Your new place may not have appliances convey, could need new paint or carpet, etc.

 

[tfoley427]

Right now we are renting in MA. Paying a very modest $925 a month with no utilities (very very very affordable around here.) I have 15-25k that wil be able to be used for a down payment, plus an additional 10k in savings, after paying off the debts (including car.) I just dont want to hurt my credit score as I have read that if you pay off every debt you have immediatly it can hurt your score.

 

[gottaluvdisney]

It depends upon your credit history. The lenders will be looking at your FICO score. And payment history counts for like 30-35 percent of your score. They want to see payment history – not just a charge and then its paid off. So, making timely payments is one of the most important things you can do. Secondly, you want your balance to be less than ½ of the credit limit. So, my suggestion would be to pay down your balances until they are lower than ½ of the credit limit and then make timely payments on them for a few months. Making more than the minimum on each.

Don’t forget when you purchase a house, you will need a lot of money right in the first few months. Survey, home inspection, utility deposits, general fixings of items that may be broke. (I just bought a house and have been to home depot four times in one week!)

Editing to add info that I found. I just took a first time home buyer class that included information on credit scoring.

FICO score is
35% = payment history—best score is having about 36 months of excellent payment history.

30% = amounts owed – ratio of balance to credit limit – best if under 50%

15% = number of months since oldest revolving credit line opened – in other words…don’t closes the account (this is very important – some people think paying off and closing is good to do, and this may hurt you when trying to purchase a home)

10%= new credit – inquiries on your account. If trying to buy a home, best not to open any new accounts or have inquiries other than lenders.

10%= types of credit used. Best to stay with 1-2 revolving credit cards – having more can hurt (but again—don’t close them)

 

[Ryansdad0727]

I just paid off the wife's car (10,000) and put about 2,400 per month on the credit card and pay it off every month. We put everything on the credit card. My credit score is 792 and i have no problems at all borrowing money if i need it. But since i have everything but my house paid for i can pretty much pay cash for everything. OP should still get a great interest rate for a mortgage. If you are a first time home buyer do not do a FHA mortgage unless you have to or the interest rate is at least a third of a point lower. The $50 buck a month for mortgage insurance really ticks me off. But i did not put any money down either.

 

[cm8]

, I would pay them all off and save the money you would have spent monthly for emergencies. Paying them all off will only help your score in the long run. I say go for it!

 

[coupon2010]

The science behind how your credit score is calculated is not an exact science. There are general guidelines but there is not an exact 100% formula that will explain why your score is what it is-high or low. The exact process is shrouded in mystery. Even the industry experts have made statements to this affect. You always should have 2-4 credit cards with low balances so that you have accounts with a positive histories now and in the future. If you pay all of your cards off and stop using them, you history will eventually disappear because you arent making any payments to anything. I have read several books on credit scores and keep up with current issues. Feel free to take my advise or leave it. I have had perfect credit for the past 5 years and have no trouble qualifying for loans with low interest rates.

 

[Cheshire Figment]

Right now your CC balances are almost 81% of your credit limit. If you are able to drop it down to under 10% you will probably see your credit score go up by about a hundred points. Likewise, getting the car free and clear can only help your credit score even more.

Just make sure that you wait until the next billing cycle has run for the CCs until you formally ask for the loan; most CC companies report the balance as of the date of the billing cycle.

And then pull your reports after there has been time to make sure that the balances are reported correctly (and the car load says paid in full or closed or something similar).

 

[C*Beans]

Do you plan on using a mortgage broker? When we bought our house last Sept, we used a mortgage broker who was referred to us and he was very helpful. He was able to give us very specific advice on what to do based on our situation.

For something big like buying a home, I would advise you to really consider looking into getting some professional advice. Best part for us was that we didn't have to pay anything OOP for us and he helped us every step of the way, even with inspections, etc.

Good luck to you!

 

[hipchickie]

This is bad advice. She has credit history and paying off the cards is not a bad thing, throwing away money on interest is crazy talk. Why in the world would you pay off a low interest car loan and not pay off high interest credit card debt.

It seems it would be a bad choice to keep unsecured debt over secured debt as well

 

[Planogirl]

I would not completely pay off the credit cards but pay them down to a tiny balance. I can't begin to count the number of people who pay off a credit card and the bank promptly closes it.

 

[mizliz]

The optimun credit score is actually about a 720. This is the magic number. Some people think an 800 is best but this is a common misconception. A score of 800 usually indicates that the person has credit cards that they barely use at all and/or have dormant accounts. This high credit score may actually work against them.

OP, please don't take this advice. I'm a Loan Officer, and this is nonsense.

There is no harm in paying off your credit cards, but don't close them. Use them for a purchase or two monthly and pay the bill in full.

 

[scribega]

PAY THEM OFF!

Like others said, why throw money away on interest.
Pay the credit cards and car loan off and enjoy the extra money every month. Even if your cards get closed it will have such a very small minor effect on your credit score that it is not going to hurt you when you apply for a loan.

It is ok not to have debt, it really is!!

- Ready Total Money Makeover by Dave Ramsey!

 

[bytheblood]

There is a lot of bad advice on here.


You should pay it all off. Get debt-free, stop paying somebody money on interest and put your money in your own bank to gain interest.

I can tell you for a fact (from line of business I am in ), that paying off your debt increases your credit score. It can actually increase it by 100 points or more in the first 60 days.

If you charge something small once every 2 or 3 months and pay it off straightaway, your credit score will remain steady or go up. You are only affected when pay minimum payments or have no credit in your name.