Q: I have a $3000 bonus (without taxes subtracted) coming next month from my job and want to get advice on where to apply it.
I have credit card debt on 5 cards that equal almost $8k, should I pay off the smaller ones – about 3 of them, pay off a personal loan that I have that has about a $1800 balance, or pay forward my car note so that I can have some more funds to put towards my other debts? I want to increase my score by October for a home.
A. If you are behind on anything – catch up. If you are on time with your payments and want to get ahead, pay off the credit card debts. Why? A car note paid on time, a personal loan paid on time, and low credit card balances are all pluses when your credit score is concerned.
Credit cards are scored more harshly than a car note or a personal loan. If every card has a balance, that's a ding to your score, if any of the cards are maxed out, meaning you've spent all or almost all of your available credit limit.
The fastest way to boost your score is and always will be to pay down your revolving lines of credit – Credit Cards. Keep them under 20%. Total at 30% MAX.
Next, make a list of all of your cards by balances and add the monthly payments you were making towards the other 3 cards to the next lowest balance to speed up the payoff process, keep doing this until you are at $0 credit card debt. By then your $1800 should be paid off or almost, then you can apply the amounts you were putting towards the cards to this loan and your car. OR, pay off the personal loan, start putting up funds for your home.
Make sure to use 1-2 cards on a regular basis keep charges under 10% to maximize the scoring system as much as possible.
Check the other items on your credit to ensure they are reporting accurately/positively as well.
Hope this helps!