I'm going geothermal in April or May. I will be applying for a 36 months same as cash. I have cash to pay off one of two things. I have great credit but want to do which is best. Would one be better to pay off ( credit wise) than the other ? Both are $3000. 1. A credit card that I never carry a balance on. (unusually high this month due to colder than normal winter and high propane cost) or 2. The last 7 months of a 42 month interest free loan on my tractor. I realize I would be paying interest on the credit card but wasn't sure credit worthy wise if it's better to have the $56 minimum monthly payment on the credit card versus the $430 tractor payment.
It would depend on what your income is, and if the $430 tractor payment is significant to your monthly income. If it is not significant, the installment loan on the tractor would be the better credit indicator. I would pay the credit card
You can (believe it or not) pay off credit too quickly (and it not reflect your credit rating as highly as it would it you'd completed the terms, in full). Pay off the credit card....for several reasons.
Credit card. No question about it, your other loan is interest free. Unless you feel like giving the credit card company some extra money.
I'm not a big fan of credit. I don't want any, good or bad. I can tell you this, though, carrying a 50% balance and making your minimum monthly payments will reflect better on your "credit score" than lump sum (balance dropping) payments.
I'm willing to bet either one will have very little effect on your overall score if you already have good credit. But X4 on the credit card.
I watch my credit like a hawk, and have been doing so for almost 10 years now. I check my report from all 3 bureaus monthly, it's kind of an obsession of mine. There are two types of credit that you can obtain, revolving charge accounts (unsecured credit cards), and installment accounts (loans). The three credit bureaus typically looks at several things when considering your credit rating. Probably the biggest and most important items (after seeing if you pay bills on time and aren't behind), is available credit vs. balance on revolving accounts (credit cards). If you carry a low balance, and have a high limit on revolving accounts, they see that as being very disciplined and low risk. I've had months where I racked up nearly 80% of my available limit on my cards due to work expenses, and carried the balance for 2-3 months. It tanked my credit score by 50+ points, and then immediately when paying the cards off my score shot right back up within 30 days. I've had months where I applied for a new card and increased my available revolving credit limit, and it actually increased my score. I've also had months where I took out a $25k car loan, or when I got my mortgage, and it didn't do hardly anything to my credit rating at all. With that said, if increasing your credit score is important, get rid of the revolving card debt. After paying bills ontime, it's the most important thing you can do to increase your credit scores.
Food for thought. Someof the richest people in the country have a credit score of 0,or at least a very low score. Pay the credit card off, then cut it up and throw it away. Credit score is nothing more than a debt score.
Thanks for the advice guys. Having a credit card isn't a problem for me. As I said, I can't remember the last time I even carried a balance on a credit card. It's more of a convenience to use it instead of carrying cash. I just pay it off when it comes due.
What's the agreement on your tractor loan? Is it 0% for the life of the loan, or after a certain amount of time will the interest accrue and retroactively? Also, what's the interest rate on your CC? If your tractor loan is a true 0% loan and won't begin to accrue interest at any point of the loan, I'd say pay off the credit card and then add the monthly amount you're paying on the CC to your monthly payment on the tractor to pay it off sooner. If your tractor will begin to accrue interest at some point in time (typically 15-20% interest), I would say pay off the tractor loan first and then apply the monthly payment for it to your monthly CC payment. Especially if the tractor payment is a significant portion of your monthly income.
Keep the card open, It's always there If you need It then. This last month I had $11,400 dollars In repairs to my 2007 Sterling Milk Truck. Worst month ever for me. In no way did I have close to enough cash to cover the repair bills. $9,000 of the bill went towards 2 of my credit cards being I didn't have the cash. Thank god my credit card balances were low at the time.
I use my bank of america card for everything as it's 1% cash back, discover is 5% on certain things in certain months. I pay for everything (utilities, cable, gas, etc) with one card or the other to get the cash back rewards. I've never carried a balance on either card in 6 years. They can be helpful, if you use them right. My interest is like 28.99 up from 10.99 they intially gave me the card at, but they won't take it down b/c I've never hit interest. In 2010 I got $450 cash back from discover.
