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Balance transfer

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Anonymous
Not applicable

Re: Balance transfer

Hypothetical:

 

I have two credit cards.  One card has a balance of $1000 and a credit line of $2,000, so my credit utilization for that card is 50%.  The other card has no balance and a credit line of $10,000, so that card has a credit utilization of 0%. 

 

The question is whether a transfer will improve my score.  If I do the transfer, the first card will have a zero balance and still have a $2,000 credit line, so it will have a 0% utilization.  However, the second card will go from having a 0% to a 10% credit utilization. 

 

However, we still haven’t determined which is better.  It may seem intuitive that credit utilizations of 50% and 0% is inferior to 0% and 10%, but such reasoning assumes that the FICO score considers each revolving trade line individually.  Do we really know if that’s true?   

 

Or, is it true that what is considered is the collective credit utilization.  In other words, the total revolving debt is $1,000 ($1,000 + $0), and the total credit lines available are $12,000 ($2,000 and $10,000) with a collective credit utilization of about 8% ($1,000 / $12,000).  In this case, a transfer will not affect the collective credit utilization.

Message 11 of 16
Junejer
Moderator Emeritus

Re: Balance transfer

I don't want to jack OP's thread, but yes both individual and overall utilization is considered.

fast2 wrote:

Hypothetical:

 

I have two credit cards.  One card has a balance of $1000 and a credit line of $2,000, so my credit utilization for that card is 50%.  The other card has no balance and a credit line of $10,000, so that card has a credit utilization of 0%. 

 

The question is whether a transfer will improve my score.  If I do the transfer, the first card will have a zero balance and still have a $2,000 credit line, so it will have a 0% utilization.  However, the second card will go from having a 0% to a 10% credit utilization. 

 

However, we still haven’t determined which is better.  It may seem intuitive that credit utilizations of 50% and 0% is inferior to 0% and 10%, but such reasoning assumes that the FICO score considers each revolving trade line individually.  Do we really know if that’s true?   

 

Or, is it true that what is considered is the collective credit utilization.  In other words, the total revolving debt is $1,000 ($1,000 + $0), and the total credit lines available are $12,000 ($2,000 and $10,000) with a collective credit utilization of about 8% ($1,000 / $12,000).  In this case, a transfer will not affect the collective credit utilization.








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Message 12 of 16
Anonymous
Not applicable

Re: Balance transfer

Thanks.  I thought so but wasn't sure.  By the way, I think your answer to my hypothetical directly answers the OP's question since my hypothetical was designed with his concerns in mind.  His FICO score would drop.  It's ashamed the OP isn't still around, but maybe our collective efforts will go to help others.

 

Thanks again.

Message 13 of 16
Jazzzy
Valued Contributor

Re: Balance transfer


@Anonymous wrote:

Hypothetical:

 

I have two credit cards.  One card has a balance of $1000 and a credit line of $2,000, so my credit utilization for that card is 50%.  The other card has no balance and a credit line of $10,000, so that card has a credit utilization of 0%. 

 

The question is whether a transfer will improve my score.  If I do the transfer, the first card will have a zero balance and still have a $2,000 credit line, so it will have a 0% utilization.  However, the second card will go from having a 0% to a 10% credit utilization. 

 

However, we still haven’t determined which is better.  It may seem intuitive that credit utilizations of 50% and 0% is inferior to 0% and 10%, but such reasoning assumes that the FICO score considers each revolving trade line individually.  Do we really know if that’s true?   

 

Or, is it true that what is considered is the collective credit utilization.  In other words, the total revolving debt is $1,000 ($1,000 + $0), and the total credit lines available are $12,000 ($2,000 and $10,000) with a collective credit utilization of about 8% ($1,000 / $12,000).  In this case, a transfer will not affect the collective credit utilization.


While moving debt around does not affect collective utilization, it obviously affects individual utilization. I know we are all here because of the focus on our FICO scores. I would again say, however, that we have read over and over about credit card companies closing accounts or cutting credit lines down when they see that you are maxed out on a card. That is seen by them as risky. For that reason, it doesn't hurt to spread balances between cards.

 

BUT...with a capital B...FICO doesn't like to see balances on too many cards. In fact, one with a small balance is best. They especially want to see under half of your cards with balances. If I have 7 cards, I should have no more than 3 with balances.

 

So...you can't always keep everyone happy at the same time. I do have 7 cards, and it seems that my EQ FICO bounces up and down by 8 points when I let a small balance show on 2 cards vs. 3 cards. I always want to have just one card show a balance, but there are 3 of us in the household using the same cards, so we always manage to show 2 or 3 tiny balances. I see my EQ score go up 8 points...down 8 points...etc.

Message 14 of 16
Junejer
Moderator Emeritus

Re: Balance transfer

Ooops, I didn't even take notice of the date of OP's post. Smiley Tongue Belay my last. Threadjack away. Smiley Very Happy

fast2 wrote:

Thanks.  I thought so but wasn't sure.  By the way, I think your answer to my hypothetical directly answers the OP's question since my hypothetical was designed with his concerns in mind.  His FICO score would drop.  It's ashamed the OP isn't still around, but maybe our collective efforts will go to help others.

 

Thanks again.








Starting Score: 469
Current Score: 849
Goal Score: 850

Take the myFICO Fitness Challenge
Message 15 of 16
RobertEG
Legendary Contributor

Re: Balance transfer

Three things to consider from a FICO perspective, when doing a BT.

FICO scores util of revolving credt at about approx half on overall % util, and the other half on a combination of indiv card % util, and the % of total cards showing a balance.

Clearly, a straight BT wont improve overall percent util, for the CL remains the same, and the balance on the card to which you do the BT will show an increase in prinipal balance of typically 3-4% of the transferred balance, which the normal instant BT fee.  So overall % util will normally increase.

On the invid card % utils, if one goes down, the other must go up.  If the BT pays one card to 0 balance, FCO might give you a slight positive for now showing one card at zero balance, but this is not a huge factor in revolving util scoring.  BTS are not a way to obtain signifcant FICO gains

Turning to the finanacial considerations, most BT's now charge you an Iinstant BT fee of 3-4%, which will result in you effectively paying approx. twice the interest on the transferred amount during the first month after the BT than you wold have paid without the BT.  Thereafter, if the card to which you made the BT aleady had a balance, then payments to then make thereafter to that card are not applied to the balance upon which you are paying their normal interest rate, effectely barring you from paying down the interest bearing balance on that card until the BT amount is paid.

Then, once the introductory rate period expires, the balances are merged into payment of their existing APR, which they hopefully thing will be a higher balance than if you had not done the BT.  They get their 3-4% upfront, and are gambling that  you dont pay it off in full before the introductory period expires. Then it reverts to their normal interst rate.

 

The CCCs would not be pushing them if it were not making them a pile of money.

 

Message Edited by RobertEG on 01-28-2010 09:10 PM
Message 16 of 16
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