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Sarah, Other/Just Looking in Racine, WI

I have a poor credit score due to bankruptcy 18 months ago and now have 3 nearly maxed credit cards. I currently have enough cash to pay them off, so

Asked by Sarah, Racine, WI Tue Jan 5, 2010

I am wondering if it would be better to pay them off, or use the money to get a savings secured loan and pay them off with that? The goal is to improve my credit score as much as possible.

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Sarah, I agree that you are probably better off paying the cards down, not necessarily off totally. I am assuming these accounts are still open. If you have any other open accounts that you are not using, it is not a bad idea to charge a small amount on them that you pay off each month. This can help boost your credit score as well. I suggested this to a friend who had credit issues due to a divorce, and her score went up about 80 points. You have some time to experiment because most of the programs require 3 years since a bankruptcy, and I assume you are asking this question on this forum because you are looking into getting a mortgage in the near future.
0 votes Thank Flag Link Tue Jan 5, 2010
First, settle any outstanding debt. If you owe money on collection accounts, charge-offs and/or judgments, make payment arrangements and get these accounts paid promptly.

Next, begin rebuilding your credit. If you have current accounts with good payment histories, or even some previous late-payment-blemishes, make sure you continue to pay those accounts on time. If you do not have any existing credit accounts then you'll need to establish several in order to create a viable credit history.

I have found that CONSUMER ACTION is an excellent resource for objective advice on all things credit related. You'll find free and sincere advice on everything from settling collection accounts to rebuilding credit to building credit from scratch on their website. http://consumer-action.org/

Beware of anyone offering to "repair" your credit! The Federal Trade Commission issued a stern warning last year that such offers are scams. Find more from the FTC HERE. http://www.ftc.gov/bcp/edu/pubs/consumer/credit/cre13.shtm


The best way to buy a home is to have a decent credit history combined with sufficient Income and Assets for a home purchase.

The best way to have a decent credit history is to settle negative outstanding obligations and pay all your bills on time for at least two years.


Trevor Curran
NMLS #40140
1 vote Thank Flag Link Sun Apr 29, 2012
Sarah, look at it this way. You are paying 20+% on those cards. You will get under 2% on your money. As long as you do not pay off the credit cards you are losing at least 18% a year. That means in 3-4 years the amount you owe will DOUBLE. The amount you have saved will, almost stay the same, maybe a 10% increase, likely a lot less like 1-3% at todays interest rates.

If you have a card that charges almost no interest it maybe that is one to keep open with a bigger balance. But the rest, pay off and save your money. From now on, it will be like getting a 18% or more pay raise.

Your credit is scre.wed for another 1-2 years anyway. So pay down your credit cards, use them all like one a month just for gas or groceries, Pay them off in full. That will help your fico score.

But do one other thing before you do this. Talk to a local lender or non-profit counseling service. Ask them what things you could and should do to improve your fico score. Consolidating debts is NOT one of the good ideas now. Paying it off would be. But you may have other issues that are more important than your credit cards are now.
0 votes Thank Flag Link Tue Jan 5, 2010
Take care of yourself before your debt, that means an emergency fund first and foremost of at least one month's expenses or 1000, whichever is higher.

After that, I don't think the secured loan is going to help if you have the maxed credit cards, in fact it'll probably hurt more. Tackle your smallest debt first, get that out of the way to start gaining momentum (Ramsey's Snowball Effect), and take it from there. I agree with the others about keeping the accounts open but I'd work on getting them to the point where you could easily pay them off on a monthly basis.

I don't agree with everything they say, but Dave Ramsey and Suzy Orman both have really good simple strategies for this sort of thing, and they both have books that should be available at your local library. Good luck!
0 votes Thank Flag Link Tue Jan 5, 2010
Pay it all down always help. However, you should consider keeping an emergency fund aside as well. Keep the balance about 30% below the credit limit, per card even it means to spread it out to other cards.. Getting another loan just means another debt. Pay attention to paying down the higher interest rate card helps bring down your debt sooner. Your bankruptcy will remain on the credit report for a few more years so pay off your cards consistently, and always try to pay more than the minimum required. Keep your oldest cards open because of their longest credit history. These points will help you boost the points from where you are.
0 votes Thank Flag Link Tue Jan 5, 2010
My recommendation is to contact a local lender who can make some suggestions of how to improve your credit score. Most lenders will work with you in repairing your credit and will give you positive information of do's and don'ts. Several lenders I have spoken to have seen decreases in credit limits from major credit companies when a client pays the entire balance off due to past history of deliquent payments. Lenders do not want to see credit cards maxed out. If your credit limit is $5,000 then your balance should be below $2,500. Having revolving credit cards with low balances and you pay them off monthly will help your credit score. I hope this helps you.
0 votes Thank Flag Link Tue Jan 5, 2010
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