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I have 12k in students loans (all of which isnt required to start making payments until Q4 2021) owed to non-government lenders, and have roughly a 1.5k credit balance currently, with 3 lines of credit. 2 being credit cards, with a combined cap of 4k. Ive had these cards for 2 years with a perfect record, making payments on both EVERY month. My credit score is 670. I have a better-than-average income, and am looking to buy a house soon. However, I would like the most favorable loan arrangement possible, so I need to increase my score.

My current plan of action is to wait until I have the capital to purchase a home, and pay off my loans all at once. My question is, is this the most optimal strategy? If not, what would be?

Also note: My time horizon would be anywhere from 6 months to 2 years to be ready to purchase a home. Ideally I would be looking for a duplex, to be able to rent, and the price range would be 400-800k. I currently have no AUM. Im 21 years old. College dropout.

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  • With a high CC debt "usage" ratio, no AUM and being age 21, I'm dubious that you'll be buying a house any time soon without help from family.
    – RonJohn
    Aug 9, 2021 at 13:03

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have roughly a 1.5k credit balance currently, with 3 lines of credit. 2 being credit cards, with a combined cap of 4k.

You are using 37.5% of your credit just in carry a balance. Paying it off now will save money and improve your score. When you carry a balance it means that everything you put on the card is instantly charged interest, there is no grace period. The advice is to keep your utilization below 30% but that includes both your balance you are carrying plus new charges. Most people with high scores keep it below 10%.

I have 12k in students loans (all of which isn't required to start making payments until Q4 2021)

If you have money to pay this off quickly, then do so. Especially if interest is accruing. But if the interest rate on the credit cards is higher, pay the credit cards off first.

If you still have the student loans then the mortgage lender will figure the amount you are required to pay each month when determining if you can afford the mortgage. The more you owe in credit cards, student loans, and car loans the more difficult to get the mortgage approved even if at first glance the combination of down payment, and income would appear to support the monthly payment for the mortgage.

My current plan of action is to wait until I have the capital to purchase a home, and pay off my loans all at once. My question is, is this the most optimal strategy? If not, what would be?

You haven't mentioned your down-payment. It might make more sense to divert some of the down payment savings to pay off the debts, even if it delays your plan a few months. It might even save you money now.

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  • I dont pay any interest on my credit card payments. I dont start accruing interest until September on my student loans when monthly required payments start. Now my question is more, “should I make gradual payments (since this will look healthier to a lender), instead of making one sum payment to pay the whole thing off?” Regardless Im going to pay it off, its more of a matter of how. There are a few good reasons I want to keep the money until Im ready to apply for a loan, but the benefits of making smaller payments gradually might outweight these benefits, if there are any. Jul 10, 2021 at 16:07
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    @CameronHonis math says to pay off highest interest rate debt in full ASAP, then the next highest, then the next highest, etc. That (and time; you're only 21) is the way to increase your credit score.
    – RonJohn
    Aug 9, 2021 at 13:01
  • @RonJohn Well of course, I would be a fool to not pay off debts that my investments dont comfortably outpace. But in terms of the timeline in which I pay off my debts, would that matter to my credit score or mortgage lenders? Aug 9, 2021 at 23:16

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