Dear Credit Card Adviser,
How long would it take for our credit reports to reflect that we paid down most of our credit card bills and paid off one of our vehicles? We will soon be house hunting and want to lower our debt-to-income ratio. My mother-in-law just sold her house and will be using part of that money to help us. If those items get paid before the end of July, would it reflect on our credit reports immediately or would it take a 30-day cycle or more to show? Almost all of our credit lines are maxed out, so there’s no doubt that paying a lot down before trying to get preapproved will help us get a decent interest rate.
— Crystal

Dear Crystal,
Credit card issuers typically send updated balances to the credit reporting companies once a month, after the issuer has processed your payment for that billing cycle. That means if you paid off your credit card balances as they appear on your July statement, the balances won’t show up as zero until August. Of course, that assumes you don’t charge anymore on your cards after you pay off the balance.

Also, make sure to know the real balance by checking it online in real time. The statement’s balance only reflects those charges made before the statement’s closing date and won’t capture any charges that occur afterward.

Paying off or reducing outstanding debt lowers your debt-to-income ratio and helps boost your credit score by lowering your utilization rate — or the percentage of available credit that you use. Mortgage lenders use this, along with your credit score, to help determine the amount of credit and the interest rate you receive.

For your utilization rate, the key is to use 20 percent or less of your available credit on each card individually, as well as combined. While a lower utilization rate helps, how much it will improve your credit score depends largely on the rest of your credit history.

This brings me to a second point. If you’re interested in getting the best possible interest rate, paying off your debt is step one. You should pull your credit reports from Experian, TransUnion and Equifax and make sure your credit history is accurate. Consumers are entitled to a free credit report every 12 months from the credit bureaus. You should also consider quickly updating your credit history through a rapid rescore.

You may also want to consider purchasing a credit score from the credit bureaus. The packages typically include an analysis of your credit report that will show which factors are hurting your credit score the most. You may find out that your debt level is just one of several factors lowering your credit score. And to get the best interest rate possible on a mortgage, you may need to polish other areas of your financial life first.

Good luck!

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