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WebCPA, Accountant
Category: Finance
Satisfied Customers: 111
Experience:  CPA, CGMA. 10+ years experience.
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My wife and I are trying to raise our FICO score. We have a

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My wife and I are trying to raise our FICO score. We have a few thousand coming from tax refund and need to know the best use for that money. My question is: pay extra on a car loan or pay off a closed credit card account we have been paying on? We are trying to buy a house and need FICO score improved.



Thank you for using this service. I will do my best to provide a complete and accurate answer. If you need additional information please let me know.


Your score is based on various factors, including total debt outstanding and total credit available. Given that your credit card is already closed, paying it down would not increase your available credit. Paying down the car loan will also not increase your available credit. Paying one loan or the other will have a similar impact on your credit score, so you would want to use the tax refund in the most financially efficient way possible.


First, set aside some of the refund for an emergency fund, unless you already have one. The bank will want to see some savings when you look to buy a home anyway. Then, compare the two loans. Look at the total outstanding of each, and the interest rate. Typically, you want to pay down the higher rate balances first, which would most likely be the credit card.


You may also want to see if you can transfer the balance to a new card with a low or zero percent introductory rate. If possible, you could transfer the balance and pay monthly so that you pay off the debt by the end of the introductory rate period. Opening the new card would increase your available credit which could also slightly increase your score. Just be sure not to start using the new card for more purchases. A combination could be done as well. For example, if your refund is $3000 and your credit card is $3000, the following might be ideal: Save $1000 in the emergency fund, pay off $800 of the card, and transfer $1200 to a new card. If you can get zero percent interest for 12 months, you simply pay $100 per month and it's paid off in a year. It still shows that you are making current payments on your debt, and opens up some additional available credit, both of which will increase your score.


I hope I've been able to help you today and thanks again for using this service.

Kind regards

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