Credit utilisation Vs total debt

SouperJim

Hi folks, I'm trying to reconsolidate some debts and improve my credit score and am after some advice. Here's my situation:

Loan- £4k balance remaining, £180/month repayments
Credit card 1- £6k balance (at 0%), £12k limit, £150/month repayments
Credit card 2- £1k balance (22%), £4.5k limit, £30/month repayments

I have £5.5k cash. I want to buy a car which costs £6k and reconsolidate my debts. My first instinct is to pay off the loan and credit card 2 with the cash, as this would give me £210/month more to play with, then take out a £12k loan to buy the car and clear credit card 1 (£500 into savings to fall back on).

However, would I be better off paying £5k off credit card 1? Would this better boost my credit score prior to taking out the £12k loan (lower utilisation)?

Confusedly yours, a newbie.

[Deleted User]

You don't have a credit score, so it doesn't matter what the CRAs tell you it is.. Just records of how you manage accounts. That includes your current indebtedness.

You should pay off the highest rate debts. The you're in a better position to rebuild your savings with the money you were paying towards the debts and potentially get a better rate loan if absolutely needed.

stehouk

If it were me i would pay of the loan and credit card 2 as you are paying interest on both, (ask for a discount for paying loan early) why pay off card 1 if it is at 0% ? if you replaced it with a loan you would pay interest on it.
You could try buying car on a 0% purchase card, there may be a charge from the dealer but that maybe less than the cost of a loan, i bought a caravan through a dealer and used my virgin 0% purchase card with no fee.

PixelPound

You don't mention the APR of existing loan or the APR of the potential loan. Info would be needed

SouperJim

Thanks for the replies. I'm tempted to pay off card 1 because the balance is at 50%. I'm reading online that utilisation influences lenders as much if not more than total debt and at present I can't get an attractive rate on the £12k loan I want.

Also, it won't be at 0% forever (balance transfer offer) and has the highest balance. When the offer ends, it's going to be very expensive.

SouperJim

Existing loan is at 3.4%. At the moment I'm being offered around 18% on the new loan. I'd like that to be nearer 5%.

Yellow_mango

I’d always assumed they look at total credit utilisation (eg across all cards / overdrafts etc) rather than on a card by card basis.

I could be wrong though.

The fact that you’re looking for a new loan whilst carrying debt at 22% on a credit card is likely to be a bigger risk factor than utilisation I’d think.

SouperJim

I hadn't considered that, but surely a loan doesn't count towards utilisation? As the amount remaining just is what it is, there's no limit as such?

In which case I'd be better off paying off card2 and £4k of card1?

[Deleted User]

It surely can, if a lender views it that way. It's used credit from your available amounts.

You're getting hung up on the concept of utilisation. Focus instead on your debts and their relative cost.

Ben8282

First off, forget about improving your meaningless credit score and stop fixating on it and utilisation.
The utilisation on your credit cards is currently at 42.4%. Not the best but certainly nothing to be particularly
concerned about.
How much longer is the 0% on card 1 for?
Does card 1 have any existing customer BT offers, even for a fee, so that you could transfer the £1k on card 2 to it at 0%?
Utilisation will be looked at overall not on a card by card basis.
The minimum payment you are making on card 1 is quite high at 2.5%. What sort of card is it?

gionnetto

SouperJim wrote: »

My first instinct is to pay off the loan and credit card 2 with the cash, as this would give me £210/month more to play with, then take out a £12k loan to buy the car and clear credit card 1 (£500 into savings to fall back on).

Your first instict is indeed correct. Pay off your highest interest card first, then the loan you currently have. Next you get a new loan, purchase the car, and pay off the 0% interest card. It's the best way to minimize paying interests.

Additionally, wait few weeks after you pay off Card 2 and loan 1, check all your credit reports. Once the full payments of Card 2 and Loan 1 are on record, take Loan 2. You should get a lower interest!

Good luck :beer: