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I have 5 cards acquired in a misbegotten, spendthrifty youth.

Utilization:

  • Account 1: $1600 of $1600
  • Account 2: $1500 of $1500
  • Account 3: $1200 of $1750
  • Account 4: $2900 of $3000
  • Account 5: $4000 of $4000

Recently fully employed after languishing for 2 years out of graduate school, I now have income available to pay these down. It's a huge priority, and they're all getting paid to zero over the next 6 months.

Would it be better for my credit score (in the USA, if it matters) to pay one off fully and then start on the next, or to get all of them below 90% utilization ASAP and then focus on one at a time?

No other delinquencies, no mortgage, significant student loans, $30k car loan within 18 months of being paid off (0% interest, ~8k left).

Thank you very much for your input.

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    In addition to what Ben Miller has explained below, consider that the benefit of a credit score is only that it helps you achieve financing (either higher limits or lower %'s). If you have this much credit card debt outstanding, getting future credit should not be on your mind - the benefit of better credit in the future is ultimately to pay less interest, so you shouldn't try to pay more interest today, just in order to have a chance at paying less interest tomorrow.
    – Grade 'Eh' Bacon
    Dec 2, 2016 at 17:20
  • Is this $2500 a one time thing or do you have this per month to throw at the debt?
    – Pete B.
    Dec 2, 2016 at 17:34
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    Regardless of Credit Score, I would pay off one card to get my grace period back.
    – Cano64
    Dec 2, 2016 at 18:02
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    @DoritoStyle To your first point, that is neither common knowledge nor universally agreed to be true (as Ben alludes to below), there are (possibly) valid psychological reasons for paying off smallest to largest. And to your second point, I neither see how this is homework, nor how that would make this off-topic. This is a very common type of question we have here, perhaps our most common, and well within the core intent of this site not to mention on-topic.
    – Joe
    Dec 2, 2016 at 20:40
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    As a professional Jeff, it might be good practice to make up a spreadsheet just to see how different strategies will impact the cost of paying them all down. Developing a good, intuitive sense of money will come in handy in the future. Also, keep in mind that student debt interest is generally tax deductible. It may be less of a burden than it now seems. Also, I'd like to echo paying one card down quickly. You can save a lot once you have a grace period going and paying with a credit card buys you about a month of free cash flow. Just use it for essentials.
    – doug
    Dec 3, 2016 at 3:45

8 Answers 8

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First, before we talk about anything having to do with the credit score, we need the disclaimer that the exact credit score formulas are proprietary secrets that have not been revealed. Therefore, all we have to go on are broad generalities that FICO has given us.

That having been said, the credit card debt utilization portion of your score generally has at least two components: an overall utilization, and a per-card utilization.

Your overall utilization is taken by adding up all your credit card debt and all your credit limits and dividing. Using your numbers above, you are sitting at about 95%. The per-card utilization is the individual utilization of each card. Your five cards range in utilization from 69% to 100%.

Paying one card over another has no affect on your overall utilization, but obviously will change the per-card utilization of the one you pay first. So, to your question: Is it better on the credit score to have one low-util card and one high-util card, or to have two medium-util cards? I haven't read anything that definitively answers this question.

Here is my advice to you: The big problem you have is the debt, not the credit score. Your credit card debt should be treated like an emergency that needs to be taken care of as quickly as you possibly can. Instead of trying to optimize your credit score, you should be trying to minimize the number of days until all of your credit cards are completely paid off. The credit score will take care of itself once you get your financial situation back on track.

There is debate about the order in which one should pay off their debts, but the fact of the matter is that the order is not as significant as the intensity at which you pay them all off. Dedicate yourself to getting rid of the debts as fast as possible, and it won't matter much which order they get paid off in.

Finally, to answer your question, I recommend that you attack the card debt one at a time instead of trying to pay them off evenly. Not because it will optimize your credit score, but because it will help you focus your debt-reduction energy as you work on resolving your debt emergency. Fortunately, the credit utilization portion of the credit score has no history, so once you pay all of these off, the utilization portion of your score will get better immediately, and the path you took to get there will be irrelevant.

After the credit cards are completely paid off, and you have resolved never to spend money that you don't have again, it is time to work on the student loans....

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    Your answer is very well written, and also more or less what I expected to hear. As far as the student loans go, I have to spend significant energy growing my practice to have the income to even make a dent.. sigh. After spending 10 years in school, the loans seem insurmountable. Nevermind that if I take the full 20 years to pay them off, I'll end up paying double what I borrowed. Yuck.
    – Jeff H.
    Dec 2, 2016 at 17:16
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    THe only thing I might add to this great answer - make all minimum payments, and send all extra available cash to the highest interest card. If OP will pay in full after 6 month, this may make little difference, but it will be a few dollars in his pocket instead of the bank.
    – JTP - Apologise to Monica ♦
    Dec 2, 2016 at 17:42
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    @JoeTaxpayer If it was me, I would take the $2500 extra I had this month and nearly eliminate 2 of the 5, regardless of interest rate. But that's just me.
    – Ben Miller
    Dec 2, 2016 at 18:39
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    The truth is, with only six months to go, regardless of the rates he's not going to save that much no matter how he pays this off. And your answer is perfect.
    – JTP - Apologise to Monica ♦
    Dec 2, 2016 at 18:50
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    I would say that it MIGHT be important add: get the 100% utilized cards down a bit each - $50 to $100 below the limt - last thing you want is over-limit fees.
    – WernerCD
    Dec 2, 2016 at 19:42
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I know your question is about your credit score, but practically speaking, you should pay of the debt with the highest interest rate first. Doing do will save you money, which is the same net effect as making more money.

Your time frame to pay it all off is short (you said 6 month), but just in case it takes longer, take care of the expensive debt first.

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You're focusing on the wrong thing here.

You should be paying off debt, not borrowing. Thus your credit score is of almost no relevance. There is no lasting effect from credit utilization, one cycle after you have everything paid off it's going to have the same credit score no matter what order you pay them off in.

I would look at which of the first three has the highest interest rate and pay it off first. You can pay any of them off in one month so whichever you pick you get one card down to $0 and restore it's grace period. After that, sort them by interest rate.

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    Credit score is used for way to many things not related to borrowing. "your credit score is of almost no relevance" would be reasonable remark if you'd not claim leaving in US... Consider to reword the post (unless you really believe score has no impact on rent, job search, insurance,...)
    – Alexei Levenkov
    Dec 4, 2016 at 19:22
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    @AlexeiLevenkov He's not going to have a good rating for a few months no matter what, after that he's going to have a good rating (unless there are other dings) regardless.
    – Loren Pechtel
    Dec 4, 2016 at 19:24
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I don't have enough reputation in this community to comment yet, so this "answer" is really just a minor furtherance of JoeTaxpayer's comment...

THe only thing I might add to this great answer - make all minimum payments, and send all extra available cash to the highest interest card. If OP will pay in full after 6 month, this may make little difference, but it will be a few dollars in his pocket instead of the bank. – JoeTaxpayer♦ Dec 2 at 17:42

...on Ben Miller's excellent answer. Once you have taken JoeTaxpayer's advice and ordered your cards by interest rate and have paid off the highest interest card first, take that same payment and add it to your next-highest card's minimum payment. Once THAT is payed off, take the combined amounts that you were paying to cards one and two and apply it all to card three along with its minimum payment. You see where this is going. By aggregating your payments thusly, each card will get paid off successively more quickly than the previous one, without increasing your overall payments to the cards, and you are retiring the highest-interest debt first. Your last card will then be paid off in record time, because you have combined all of the payments for cards 1-4.

One other amplification: Since we don't know which account has which interest rate, it may be more advantageous to order them by balance, with the smallest first. That way you retire the first card quickly, which gives you a sense of accomplishment, and by the time you reach your highest balance card, you have snowballed all of your payments and are now throwing boulders instead of pebbles at it. You'll have to do that math to see which method has the most benefit.

Then roll it all into the car payment. Then roll it into your student debt. Etc.

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    Welcome! Referencing or quoting another answer (or a comment) is generally fine (with attribution) (throughout Stack Exchange), as long as you're adding unique value in your answer. I'd recommend making your answer standalone, though, perhaps by quoting or rephrasing the comment you're referring to? The original could easily get pushed into chat or deleted.
    – jpaugh
    Dec 3, 2016 at 17:08
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The best thing to do is to completely pay off one credit card, then apply the left over to the highest interest card. After that, ALL of your expenses that can be put on a credit card, should be put on the one that you just paid off. At the end of the month, pay off a different credit card and the highest interest, and move all your purchasing to that card. Keep going around the circle until you are able to pay them all off. Doing this will be good for your credit score as the debt on the cards will now be "new".

If you're really desperate to increase your credit score (e.g. refinancing a house) you can use balance transfers to temporarily make it appear that you have zero debt but it will cost you some money, typically balance transfers cost something like $35 + 2%.

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If you have the money and the determination to pay off all the cards in six months, then the order will make little difference to your credit score, and to your finances.

If you had less money available (say you could pay off $500 a month in total), then it would be good for financial reasons to pay off the credit card with the highest interest rate first, so you pay less interest. It would be good for psychological reasons to pay the card with the smallest amount first (so you feel successful quickly, and some people need that feeling of success to continue paying off, just psychological). And if these things contradict each other, figure out what is more important.

And whatever you do, paying back your debt is better than not paying it back. So if you can't make up your mind, then you pay #1, then #2, then #3, then #4, then #5.

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Get a loan at a decent interest rate and use that to pay off all of the credit cards. Then pay into that loan and leave the credit cards alone. Cancel them and don't use them.

Credit card debt is possibly the worst kind of debt. So expensive. It's not designed for long term borrowing. It's designed to be paid off completely every month.

Get a single loan and consolidate all your debt into it. It will have a lower interest rate and cost you a lot less in the long term.

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In the sole interest of improving your credit score, the thing you should focus on is lowering your overall utilization.

The best thing you could do for this would be to get a loan to reconsolidate your credit card debts into a single, long term loan.

The impact of this is that your credit card utilization, assuming the loan covers 100% of your balances, will suddenly drop to 0%, as you'll no longer have a balance on the cards.

Additionally, at this point, with a consolidation loan, you'll be building loan history by making steady, fixed payments on the loan.

The loan will also, ideally, have a significantly lower interest rate than the cards, and thus will save you money that you'd otherwise be spending on interest.

A lot of others here will feed you some additonal, irrelevant advice - "Pay off X credit card first!"; Ideally, you need to eliminate this debt. But to directly address the question of how you could improve your credit score, based on your utilization, I believe the best option would be for you to reconsolidate your credit card debt into a single loan, to reduce your utilization on the cards.

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