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This may be an odd question..
*BACKGROUND* DH and I have very very bad credit from years of being young & "poor" and having lack of judgment of needs vs wants etc... well, now that we are a tad bit older we are trying to repair everything and he FINALLY just got a awesome job and I can be a SAHM like I have always wanted to be... when I quit my job I will be paid out about 16k in unused vacation time (yippee!). With that money we will..
-move to the new city DH's job is in
-pay off our car we struggle to pay monthly (and regularly get 2+ months behind on!)
-pay off all medical bills
-pay off student loans
-bring other monthly bill balances to date (utilities,cells,etc)
-have about 5k for savings (we have never had a savings!!)
My question is --- will doing all of this bring up our credit score? Or will it drop it because we're doing it all at one time? You know what I mean? After this we will have so much debt off our shoulders we will be able to live comfortable and continue to make our other car payment on time monthly (and other bills)
We would like to continue saving and bring up our credit and buy a house within the next couple of years...
Re: This may be an odd question..
Wow, that's a lot of unused vacation time!
I have never heard that paying off all your bills at once is a bad thing. I can't imagine that it would have a negative impact on your credit scores. However, any improvement may take a few months because credit bureaus don't update constantly. I'm also not sure if they carry some sort of "historical" data that drags in a prior bad rating to reduce the excellent improvement.
But, good for you for getting out of debt. That has to be a great load off your mind.
I'm fairly certain that paying off your bills all at once is a great idea - for your credit score, as well as in terms of savings on interest you'd pay if you waited - especially since this will still leave you with a good starter E-fund.
As far as your credit scores, you're likely to get a moderate bump at first, because your debt-to-credit ratio will go way down. As PP said, this may take a month or two to fully reflect in all your scores. However, since your payment history is not so good, it will take many months of 100% on-time payments to gradually bring your score up from that damage.
ETA: congrats, by the way! This is a great situation to be in
"You know you're in love when you don't want to fall asleep because reality is finally better than your dreams." - Dr. SeussPaying all your bills and getting rid of the debt will help your scores, for sure.
Unfortunately, it takes more time to repair credit than it does to ruin it.
To keep up with the new financial way of life, be sure all your payments going forward are in-full and on-time, no exceptions.
Credit reports can depict anywhere from 12-24 months of payment history for a lender. But, as times passes, those late, slow, or no pays will fall off the "cliff" and will be replaced by your new responsible payment history.
While payment history progresses this way...things like collections and charge-offs can remain for years. Bankruptcies can remain for 7-10 years.
This isn't to say that you are out of luck for ever getting a loan in the future, people definitely do, but you should prepare yourself that a future loan may not have the lowest rate or the best terms just due to whatever nagative history your credit reports reveal.
If you haven't looked at your reports, you are each legally entitled to one free report, per year from each of the three credit bureaus (Transunion, Experian, Equifax).
Congrats on this exciting new savings account and new financial plan! It's awesome.
You're doing the right thing by paying off debt. Your credit score will eventually improve. The best thing you can do is just wait, and keep monitoring your credit reports to make sure they're accurate.
As the previous poster mentioned, you can get a free credit report once per year from Transunion, Experian, and Equifax (don't go through a third-party site, even if they claim it's free). Rather than getting all three reports at once, spread them out, so that you can get a new credit report once every 4 months.
Lastly, don't let anyone talk you into financing a purchase just to improve your credit score. If you can avoid interest by paying cash up front, do it! What's the point of improving your credit if you have to spend more money each month?
I missed the part about 16k in unused vacation sorry
If it was me I would immediately pay to get all of your accounts up to date and pay off your medical bill. After that is done, anything left over put in to savings so you don't have to worry about having money to pay for something you weren't expecting. I hope my comments have helped!