In terms of a credit score, is it better to...?

Question

Pay DOWN one high balance credit card or pay OFF a few smaller balanced ones. For example, lets say I have one CC with a balance of 5000 and 4 others with a $500 balance. If I have $2000 should I completely pay off the 4 or bring the $5000 one to a $3000 balance. Thanks!!

Answer 1

Pay the smaller cards off first and then work on the larger one using power pay method. Then close three of the four cards you paid off and be sure that they note when you close the cards that they are closed at the request of the customer. You will have reduced your ability to jack up your revolving debt the the limits on the three cards that you closed out and paid off and that will also help your credit score. Your debt to income ratio is only one part of your credit score, so the outstanding balance will be the same regardless of where you apply the money and will not effect your ratio either way. Your ability to go further in debt (available credit) on open cards will effect your score as well.

Answer 2

Sorry, but Suther is completely wrong on this! & others are not answering the question. You are asking about how it AFFECTS your credit, not how to pay it off faster.

If you pay off your cards & close them out, the bureaus will not consider them part of your credit any longer. It will actually HURT your credit to do that. If you decide to pay the 4 off, do so but leave them open. B/c your available vs. used credit ratio will go down.
Ex: just for argument sake, since you did not say, we will assume the 5 cards are at the max ($5000 + 500 + 500 + 500 + 500 = $7000 intotal debt) your available credit is $0 or 100% debt ratio. Your rating goes down b/c they view you as being at your limit w/ no breathing room (& that spells trouble). You pay off the 4 cards & your available is $2000 & you leave them open. This gives you a ratio of 29% (2000free space/7000 possible available=.29). this is still not the ideal scenario, but look what happens if you close the cards... you are back to 100% maxed out!

Like someone else said, pay the ones or one that will get you below the 50% mark of the credit limit, then spread the rest, if any.

Answer 3

They don't like your balance to be more then half of your credit on the card. So if your credit limit on the card that you have 5000 on is below 10000, then pay majority of what you have to that card and then split up the rest between the 3 paying down the one with the highest interest rate with the most money.

Answer 4

You shouldn't expect a substantial difference either way you do it. The greatest score increase would be to pay off those balances that are the highest compared with your credit limit. This "credit utilization rate" can impact your score in a negative manner if you are using too much of your available credit.

A good rule of thumb is to make sure that all balances are below 30% of the credit limits. This will give you maximum benefit.

Another thing to consider is that even though the immediate credit impact may not be as big, paying off the small ones will eliminate your liability to those creditors entirely. It feels good when you pay one off.

Answer 5

Scores are judged by credit limit - credit balance ratios per account and as a whole portfolio. The best course of action will depend on what the limit is on each of these cards. Exact score improvements are not possible but their are tools available to those in the mortgage industry that allow them to make very close determinations on what score improvements would be.

Here is some additional info. Hope this helps.

Answer 6

It depends on what the credit limits are on each card. If the ones that have a $500.00 balance have a $2000.00 limit, you are only using 1/4 of the total. That will improve your score. If any of them are close to their limits, that hurts your score.
As to which one/s to pay off, the ones with the highest interest rates. This will not affect your score, it will only save you money.

Answer 7

You should pay them off before interest accrues, if possible. Otherwise, make a little bit more than the minimum monthly payments... Don't apply for more credit cards, though. It hurts your score.

Answer 8

whatever you do - don't close acct's w/ zero balances. You need to have a healthy ratio between used credit & available credit....if you close acct's, then that credit is gone and you ratio skyrockets.....just cut them up and/or lower the available credit to you in small increments.