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Credit Utilization
I have a question I asked multiple people who are called expert loan officers and credit repair geniuses but I am getting conflicting answers. I want to know if a consumer needs to get his credit scores up for a mortgage to a 640 FICO. He has never missed a monthly payment and has perfect payment history the past five years. He has 10 credit card accounts with all of them maxed to the credit limit. Here are the credit card balances and credit card limit. His middlw credit score is currently 525. Question is what credit card should he pay down the balance to lower his credit utilization ratio. Should he start paying down the lower limit credit first or should he pay down the higher credit limit credit card first. Here is his credit cards, the balances, and the credit limit.
CREDIT CARD. BALANCE LIMIT
1. DISCOVER $498. $500
2. CAPITAL ONE. $470. $500
3. CREDIT ONE. $490. $500
4. SELF VISA. $1,500. $1,490
5. TRUMP CARD $4,000. $4000.
6. JOURNEY CARD $2,130 $$2,200
7. CREDIT PLUS $3,490. ,$3,500
8. BUDDY VISA $1,500. $1,600
10. MISSION LANE $1498 $1,500
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6 Replies
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Hello Juan,
When a consumer maxes out a credit card, or used 50-100% of their credit limit, they drop their scores 80-120 points.
They need to look at their statement ending dates for each account, pay down the balances to 30% or less of the credit limit, 2 days before the statement ending date, the lower balance will report to the bureaus after the statement ending date. Then you can pull a new report and their scores should be where you need them to be.
Also, allowing a $5-$10 balance to report helps you more than a $0 balance, so never advise to pay off a balance.
Hope this helps! Reach out when you have clients with credit needs 🙂
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CREDIT CARD. BALANCE LIMIT
1. DISCOVER $498. $500
Pay down to $150 or less
2. CAPITAL ONE. $470. $500
Pay down to $150 or less
3. CREDIT ONE. $490. $500
Pay down to $150 or less
4. SELF VISA. $1,500. $1,490
Pay down to $450 or less
5. TRUMP CARD $4,000. $4000.
Pay down to $1200 or less
6. JOURNEY CARD $2,130 $$2,200
Pay down to $660 or less
7. CREDIT PLUS $3,490. ,$3,500
Pay down to $1,050 or less
8. BUDDY VISA $1,500. $1,600
Pay down to $480 or less
10. MISSION LANE $1498 $1,500
Pay down to $450 or less
Hope this helps 🙂
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Thank you, Ali. Hope everything is well. What a year. Thank you for answering this post of Juan. I will introduce you to Juan and his wife Lisa Johnson for credit consulting but right now, he needs to get his credit to 620 from 525. Juan and his brother Hector need to purchase a house which needs to close on September 1st. Juan only has $2,000 this month to pay credit cards and another $2,500 next month. Should Juan pay the little credit cards with high balances first?
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Lowering the total credit usage ratio is important to enhance credit scores, particularly for mortgages. Here’s a plan:
General Strategy:
The aim is to reduce overall utilization below 30%, preferably less than 10%.
Priority:
Start with cards closest to their limits first, regardless of the limit amount. This method will reduce individual card utilization faster.
Specific Suggestions:
Begin with these cards (100% or close to 100% utilized):
- Discover ($498/$500).
- Capital One ($470/$500).
- Credit One ($490/$500).
- Trump Card ($4,000/$4000).
- Credit Plus ($3,490/$3,500).
- Mission Lane ($1498/$1,500).
Then move on:
- Self Visa ($1,500/$1,490) has exceeded the limit and should be dealt with quickly.
- Journey Card ($2,130/$2,200).
- Buddy Visa ($1,500/$1,600).
Balancing Act:
Paying off smaller balance cards is a quick win. However, attacking larger balance ones (like Trump Card & Credit Plus) will have a greater impact on the overall utilization ratio.
Target Utilization:
Aim to get each card under 30% utilization, then work for 10% or less.
Alternative Strategies:
Ask for credit limit increases on cards showing good payment history.
Consider consolidating some balances with a personal loan, which could improve the credit mix and lower utilization.
Timing:
Credit score updates can be fast once balances are reported. Most card issuers report to bureaus monthly, often on statement closing date(s).
Consistency:
Keep consistently low balances. Don’t let them creep back up after paying down.
Remember:
This approach concentrates on usage. Maintaining a perfect payment record is also very important. Low usage combined with a perfect payment history should significantly boost your score.
Given the current middle score of 525 and the goal 640, achieving the target might take several months of consistent balance reduction plus perfect payments. Regularly monitor progress and adjust strategy as necessary.
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Great informative guide on how to think smart on ways to maximize your credit scores.
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I agree with Stanley. Great informative explanation by @Ali Ali Rubicava of Credit Recovery based in California.