help! - how to distribute CC balances

[Anonymous]

Hello. Which scenario would be best for my FICO score (my current score is 773):

- I currently have 4 open credit card accounts and 1 installment account. The credit cards are all long-standing accounts with high credit limits (17,000 - 30,000)and relatively low interest (all below 10%). I have balances on 2 of the 4 CC accounts - (one is at 20% utilization, the other is at 65% utilization). The remaining 2 credit cards have a zero balance. I have 1 installment loan (2 years into the 10-year term, variable interest rate currently at 11%). I have no other debts and a 20-year record of paid in full mortgages, car loans, etc.
With this current setup, my FICO score is 773.

- I am considering transferring my installment loan balance to one of the credit cards that currently has a zero balance. It would be a much better (fixed) interest rate and I could pay off the debt ($16,000) about 3 years earlier than if I left it as a variable rate installment loan ---- but I'm concerned that having only credit card debt will hurt my FICO score. Also, doing this would "add" $16,000 of credit card debt, instead of it being separated out as debt on an installment loan.

If I do this, obviously I would have the plus of having paid off a loan, but I would now have credit card balances that utilize 44% of available credit instead of 24% - (the 3 cards with a balance would individually be at 40%/50%/65% utilization. The 4th card would still be at zero balance, but it has the highest interest rate so I never use it.)

I'm assuming doing this balance trasfer would damage my FICO score, even though I would be able to pay off the loan balance in 5 years instead of 8.

Any ideas? Thank you for the help.

[Tuscani]

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aa123 wrote:
Hello. Which scenario would be best for my FICO score (my current score is 773):

- I currently have 4 open credit card accounts and 1 installment account. The credit cards are all long-standing accounts with high credit limits (17,000 - 30,000)and relatively low interest (all below 10%). I have balances on 2 of the 4 CC accounts - (one is at 20% utilization, the other is at 65% utilization). The remaining 2 credit cards have a zero balance. I have 1 installment loan (2 years into the 10-year term, variable interest rate currently at 11%). I have no other debts and a 20-year record of paid in full mortgages, car loans, etc.
With this current setup, my FICO score is 773.

- I am considering transferring my installment loan balance to one of the credit cards that currently has a zero balance. It would be a much better (fixed) interest rate and I could pay off the debt ($16,000) about 3 years earlier than if I left it as a variable rate installment loan ---- but I'm concerned that having only credit card debt will hurt my FICO score. Also, doing this would "add" $16,000 of credit card debt, instead of it being separated out as debt on an installment loan.

If I do this, obviously I would have the plus of having paid off a loan, but I would now have credit card balances that utilize 44% of available credit instead of 24% - (the 3 cards with a balance would individually be at 40%/50%/65% utilization. The 4th card would still be at zero balance, but it has the highest interest rate so I never use it.)

I'm assuming doing this balance trasfer would damage my FICO score, even though I would be able to pay off the loan balance in 5 years instead of 8.

Any ideas? Thank you for the help.

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Welcome. Honestly, your score is superb. I would worry more about saving money than increasing your score. Generally, a balance BT between revolving accounts (credit cards) will not hurt your score. However, a large balance transfer from installement to revolving certainly will! Why? Because revolving credit holds much my weight than installement when calculating a score.

You mentioned you have a good mortgage history. Why not roll both your installement and revolving debt into a home equity line of credit? A HELOC will almost always have a lower rate than any credit card or other installment loan.

[Anonymous]

Thank you for the response - and for the great advice. I agree with you completely - I'd definitely open up a HELOC if that was an option, but unfortunately I sold my house three years ago. I also agree with you that my attempt here is not to improve my FICO score - (it's ok where it is). I just don't want to damage my score by transferring an installment loan balance to a (lower rate) credit card. But you've confirmed my suspicion... my FICO score will probably drop if I move the balance from an installment account to a revolving account. Thank you for the help.

[Tuscani]

No problem!

[Anonymous]

a related question regarding revolving (credit card) accounts and how they affect your FICO score:
Does it matter how your balances are distributed between all of your revolving accounts?

In other words, I have 4 credit cards - two of which carry a balance (one is at 20% utilization, the other is at 65%) and two cards that have zero balances. My total utilization of all 4 cards is 24%.

Would it be better to distribute the balances more evenly between all 4 cards, or does that matter in terms of your FICO score?

[Anonymous]

I'd get some more cards if I were you. I'd look for some cards that had a 0% BT rate, preferably with no fee, or look at every offer that came in the mail until I got one I liked (I just got an offer from Chase today that had 0% on BT until October 1 2008 and no fee). Getting new cards will give you lower utilization, the inquiries won't be much of a hit and will age off, and you'll save money by moving the balances onto the 0% cards. If you can't pay the balances off before the 0% rate expires, just move what you can pay during that time, or check out moving them back. Or pick out cards that will have a good rate after the 0% rate expires, so you can consider leaving the balances on the card you move them to. Your score is going to have to drop one hell of a lot before it makes a difference in what you can do. My score is 749 and my wife's is 727 and neither of us has any problem getting all the credit we want on excellent terms. And getting new cards doesn't have as much negative effect as one might think; I got 6 new cards during the last year and my wife got 5. And they really cut your utilization. Plus you can get money off of them; pick cards that give you a $100 bonus and then throw that on the debt when you cash in.

[Tuscani]

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aa123 wrote:
a related question regarding revolving (credit card) accounts and how they affect your FICO score:
Does it matter how your balances are distributed between all of your revolving accounts?

In other words, I have 4 credit cards - two of which carry a balance (one is at 20% utilization, the other is at 65%) and two cards that have zero balances. My total utilization of all 4 cards is 24%.

Would it be better to distribute the balances more evenly between all 4 cards, or does that matter in terms of your FICO score?

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I would restribute all balances. Meaning, I'd rather have a balance across all cards than having one maxxed out.

[Anonymous]

Thanks to you both! - that's great information.
I'm assuming, by the way, that something below 40% utilization per card is the magic number?

[Anonymous]

I've heard 30, 50, 70, and 90 as thresholds. I wouldn't even worry about that too awfully much, although your plan does make sense, provided the cards are all pretty equal and the transaction fees for shifting don't amount to much. But if one card is especially good, I say load it up. YOUR score will certainly handle it. I have one card at 76% utilization because it has a 0% BT that you could take out in cash, so I did, and put the cash in the bank. My wife and I each have cards that at one point were within a few percent of the limit (hers was $5 short of the limit) because they gave us 0% on a BT in perpetuity, and for the first few months you could make new transfers with no fee, so every month as soon as I made the minimum payment on each card, I made a BT onto the card in the amount of the payment I had just made. We applied for several new cards in the year following that, and got them all with no problem. Don't get your OVERALL utilization too high, but loading up one card or another that has a particularly good deal hasn't hurt me any.

[Anonymous]

aa123,

You are correct in your thinking. Even though total card util is 24%, if one is at 60% that tends to have an adverse effect. 50% util is supposed to be one magic threshold. 35% util is another. 15% util is supposedly still another.

With a 773 FICO, you should have no trouble getting a 0% BT approval. AMEX has several options, and cards like AMEX Blue tend to stay at a low APR even when the 0% APR expires.

Yes, your scores may drop some when moving debt from installment to revolving. However, if I read you right, you're looking to reduce debt and reduce the repayment period.

If you plan to buy a home in the next 5 years, so long as your FICO scores are about 720 or more, you're still going to get about the best possible interest rate on a home loan.