My client currently has about 15k in debt...has always paid minimum payments for last 4-5 years, but always kept a high limit. recently he just went 30 days late on all his accounts. He was just gifted 15k from a family member? whats the best thing to do to correct his credit...he makes good money, but now has 30 day lates....

should he simply pay all the cards off in full today? or should he make stratetegic payments to pay it off over time? what is the best way to get his fico back up and him be able to get approved for a loan...first time home buyer also... any thoughts?

I hope he doesn't need that $15,000 for a Down Payment.

I'd bring every CC up to date, and then consider paying off the highest Interest Rate Cards. But I'm not a Credit Rating Strategist . . . . and they can give you the optimum formula for improving his credit score.

If he weren't buying a house, I'd say pay everything off and stop giving $2500 to $3000 away every year (coming from someone who has only paid 66¢ in interest during the past 15 years).

yea he is being gifted the downpayment also...

the 15 k will cover all his debts and some...

the downpayment is coming from somewhere else...and i m telling him to cut up his cards...

You're too much like me to take my advice. Cutting up the Cards or Closing Accounts "may" be too drastic. Keeping the Cards; but introducing discipline in their usage would probably be the best long term medication; but people seem to want the "quick fix".

Where is this "somewhere else" ? I'd like some of what they've got !

No need to cut them up, just have him not use them. It will not help the credit to close them, as others mentioned discipline.

I do a lot of credit repair and know the credit bureau triggers pretty well.

The accounts should remain open. Do NOT close the accounts.

Here are some triggers that affect the credit scores on revolving accounts. I will start with the worst and end with the best.

Over the credit limit
Below 100%
Below 50%
Below 30%

You do not want the cards to be inactive. If you pay them down to 0 you should make a charge and keep them active with a balance. Carry a balance and make monthly payments to keep the account active.

Although the following method can be tedious and complicated it does allow you to build credit for no cost or a very minimal cost.

If you pay off a credit card and use it in place of cash then pay off the balance within 30 days you typically are charged no interest. (See your card agreement for details) Your billing date is the date they report your balance to the credit bureau. If you make the charge before your billing date and pay off the account when the statement arrives you may not pay any interest. (provided the charge is paid in full within 30 days) You also show activity on your credit report when they report the charge you made.

Here is an answer more specific to the situation:

Pay all cards current.

Paying each below 50% is the first goal. Start with the card the takes the least amount of money to pay it under 50% and work your way up to the largest.

If there is money left then work on paying them down to 30% in the same order.

If there is still more money left work on paying them down to 0 in the same order.

This is only for building the credit score! The best method to use when paying off these debts is to start with the highest interest card and work your way down to the lowest.

Your borrower could probably shoot for 30% then have money left over for cash reserves. At least 2 months PITI would be suggested.

Since the credit reporting agencies' scoring algorithms are proprietary no one can FOR SURE. However, unless the 30-day lates were reported i error only time can fix his credit report. That said, there may be other factors that are hurting his score. For example, he should pay down his outstanding balances so that they are no more than 25 percent of the high credit limit.

I do not think 30 days usually hits the credit score. He may want to think of paying them done 50% IMO to get out of the minimums, plus APR is a waste of money. Best to avoid if possible.

[quote=Hello33]I do not think 30 days usually hits the credit score. He may want to think of paying them done 50% IMO to get out of the minimums, plus APR is a waste of money. Best to avoid if possible. [/quote]

If the credit history is light, a 30 day late will make a big difference. Multiple 30 day lates will make an even bigger difference. If there's a long credit history, a 30 day late won't make much difference.

A higher credit balance will also result in a bigger difference with the 30 day late.

Paying down to 50% will help some, but not nearly as much as paying down to at least 1/3 to 1/4 or down to $0.