Okay here is the deal we are roughly 40,000 in debt (just a little under). Around 20,000 is what we owe on our vehicle, and we are not planning to pay that off early (we will probably be tradiing that vehicle in soon).
That leaves around 20,000 in credit card and (student) loans debt for the two of us (husband and wife). Both of our credit scores are 680/687. We are coming into some money soon that will wipe out our debt completely (July). So this being said all of our accounts are paid on time, no negative reports or anything bad on there.
We are moving and going to be buying a house. I am wondering how long will it take for our credit scores to go up once all our debt is paid off and if anyone has any idea how much it may go up. Right now our balances versus limits are too close on our credit cards thats why our scores are so low. Other than that everything is in good standing. Thanks.
Total debt does not effect your credit score as much as people think. Infact, the way credit scores are strcutured you basically have to be in debt to get a decent credit score these days.
I think you may see a little pop in your score, but dont expect it go up all that much. I was 20k in credit card debt with a perfect payment history and credit score 707. I sold a life insurance policy to pay it off and my score did not really change much at all. Your payment history is MUCH more important then your total debt.
Before I go into my answer, let me break your score down for you:
35% Payment history
30% Total debt owed vs. available credit
15% Length of time establishing credit
10% Types of credit established
10% Inquiries and New Accounts to Established Account ratio
Well, if you’re going to pay that 20K, that will definite;y help the 2nd aspect (debt to available credit ratio). Once you’ve done that, I’d suggest requesting a line incresase so that you can allow yourself a little more cushion. I’m not endorsing the notion to go max the cards out again if you do get the increase, but it helps to have high limits especially if you’re planning on making a significant purchase, such as a house because the balance of the note will throw your debt to available credit ratio through the roof again.
If you can get the balance back to 30% of your total available credit, your score could go up at least 30 points within the next 45-60 days. Plus, although you said that you weren’t paying it off soon, it wouldn’t hurt to knock the balance down on that or trade it for a cheaper car, as it will knock down the remaining debt to available credit ratio. You want to lower your debt to availble credit ratio as much as possible before financing a house. That alone can save you points (hundreds) of dollars towards the monthly mortgage.
It may take up to 3 to 6 months after u have paid.. and u should wait like a year to buy your house..
All I know is that I sold a house I owned with an ex and about two months later when I went to get a car loan my credit score had jumped up 20 or 30 points. That is because I no longer had two mortgages on my credit. I would get a credit report two-three months after you pay the accounts off.
You can get one free credit report a year at: https://www.annualcreditreport.com/cra/index.jsp
On another note, having sold cars – if you can, it may be in your best interest to keep the car you have, pay it off and drive for a while with no car payments – most people who trade a car in before they have paid it off end up trading it in at negative equity – meaning they owe more on the car than it is worth. The dealer will say no problem – because they will just add that negative equity onto your new car loan..just an FYI.
Best of luck with the house!