topic Re: Question about revolving credit utilization % in Understanding FICO® Scoring

Question about revolving credit utilization %

Anonymous — Wed, 21 May 2008 19:41:33 GMT

I currently have a Chase Visa with a somewhat largish balance on it ($4,000, out of an $8500 CL). The APR is high (21%), and so I'd like to move the majority of the balance via a BT to my WaMu credit card, which currently has a $0 balance, and offers 0% APR on BTs until March 09.

The problem is that the WaMu CL is only $3500. From a purely financial perspective, I save more the more I transfer over to WaMu given that I'm planning on paying everything off by March 09 (even when factoring in the BT fees). However, how much will this affect my credit score, given that I would be utilizing much more of my WaMu CL than I do with my current Chase card?

What counts more - individual card utilization rates or overall credit utilization? Obviously my overall util stays the same but one card drops to to near zero while another goes up close to 100%. This seems like it might be a bad idea.

What are my options? I'm looking for whatever can save me the most in interest over the next year while not overly affecting my scores. FYI, my scores are between 744-760 amongst the three CRAs.

Re: Question about revolving credit utilization %

Anonymous — Wed, 21 May 2008 19:46:46 GMT

Both individual and overal util count, but nobody knows how much exactly.

I can tell you my experience - I lost about 58 points when a revolving account reported at almost 100% util. I also had 2 new accounts report and the accompanying inquiries, so the 58 points may not have been all from the maxed out card - but I think it caused the lion's share of the drop.

To me, the important question is: do you plan on applying for new credit anytime soon? If not, then the impact on your score doesn't really matter. Your score will bounce back as that high util card is paid down. If I were in your shoes, and not planning any new credit in the near future, I'd do what makes sense financially and BT to the lower rate card.

Re: Question about revolving credit utilization %

Anonymous — Wed, 21 May 2008 19:55:46 GMT

Interesting. It's tricky because I am looking to apply for new credit likely within the next 6 months or so. What I was thinking of doing was transferring a smaller amount (say, $1500 or so), and would then have a lower individual util on each of the two cards than I do on the Chase currently. It'd save me some money but not as much. Though, I have no idea as to how that would affect the scoring algorithm.

Another thing I was considering was a very small bank loan at a small but not zero APR - I think I could get a $4000 loan to pay off the credit card at something like 4 or 5%, which I could easily pay off in a year +/- a couple months. Though, they'd have to pull my credit and I'd have another credit line somewhere. Does this make any good sense? Would it be more disruptive to my score than just BTing from one card to another?

Re: Question about revolving credit utilization %

marty56 — Wed, 21 May 2008 20:00:11 GMT

If you are 100% sure you can pay the BT off before March 09 and dont mind the score hit, it is probably safe to do the BT. The only issue in doing that is what will Chase think about the socre drop?

Re: Question about revolving credit utilization %

Anonymous — Wed, 21 May 2008 20:21:01 GMT

I'm not really worried about what Chase thinks of a score drop - if my score dropped it would be because I moved most if not all of my balance off their card, so any rate increase wouldn't affect me. My BT rate on WaMu is set until next March, as well.

However, if doing this makes my score drop 50 points, then screw it. The extra few hundred dollars I might save in interest isn't worth being screwed on a new credit application in the next 6 months (likely an auto finance loan).

It's kind of frustrating that I know I can work the system to be better off financially, but I have no way of knowing for sure how my score will change.

Does anyone know whether taking a small, low interest bank loan (as I mentioned above) to shift the debt from a revolving line to a fixed line with much lower APR is a good idea?

Re: Question about revolving credit utilization %

Anonymous — Wed, 21 May 2008 20:42:12 GMT

Did you call Chase and ask them to lower the APR? 21% is highway robbery!

Re: Question about revolving credit utilization %

marty56 — Wed, 21 May 2008 20:48:44 GMT

If you could pay 91% of the BT loan off before you apply for the auto loan, that would be great.

How much of the 4000K could you pay between now and the time you want to apply for the auto loan if I can ask?

Re: Question about revolving credit utilization %

smallfry — Wed, 21 May 2008 21:24:00 GMT

Why not call Wamu and tell them you want to do a BT but need a CLI. See what they would give you without a hard pull. Ask for 10K or something tell them you want to BT 4 grand.

Re: Question about revolving credit utilization %

haulingthescoreup — Wed, 21 May 2008 21:49:52 GMT

@Anonymous wrote:

I'm not really worried about what Chase thinks of a score drop - if my score dropped it would be because I moved most if not all of my balance off their card, so any rate increase wouldn't affect me. My BT rate on WaMu is set until next March, as well.

However, if doing this makes my score drop 50 points, then screw it. The extra few hundred dollars I might save in interest isn't worth being screwed on a new credit application in the next 6 months (likely an auto finance loan).

It's kind of frustrating that I know I can work the system to be better off financially, but I have no way of knowing for sure how my score will change.

Does anyone know whether taking a small, low interest bank loan (as I mentioned above) to shift the debt from a revolving line to a fixed line with much lower APR is a good idea?

A loan works very well, as long as you're disciplined enough not to run CC balances back up again, which doesn't sound like the issue here. Installment util is much less of a factor than revolving.

You would want to be very, very sure that a loan did not report as a consumer finance loan, which is almost impossible to identify, so be sure to go to a credit union or bank. Do NOT ask for a "consolidation" loan or similar verbiage. Also, make sure that they're not going to try to make you close your CC. Some lenders get a bit over-officious and pretend that they are DMP's, which they are not.

You'll get a ding when the loan first hits, because it will be at 100%, but make an extra payment to start it off, and your score should bounce back, plus it will benefit from the lowered revolving util.

I would get a little nervous about nearly maxing out your WaMu. They are definitely one of the more squirrelly lenders these days. I don't know how they'd react, even if you were taking advantage of their BT offer. GL

Re: Question about revolving credit utilization %

Anonymous — Wed, 21 May 2008 22:16:36 GMT

haulingthescoreup: Thanks for the advice! The loan offer I had been looking at was from Bank of America, though I'm not sure if it's a Consumer Finance Loan or not. Would an institution like that somehow offer a CFL and not make it clear even in the fine print? I would certainly try to figure that out first.

Yeah, I don't think I'm going to take any action that would max out a card. How much of a ding can one expect when a small loan like this hits? Making an extra payment is no big deal first off, what I'd expect is that whatever minimum payment they propose, I'd be paying more than that monthly anyway.

Re: Question about revolving credit utilization %

haulingthescoreup — Wed, 21 May 2008 22:30:42 GMT

You should be OK with BofA. What you want to watch out for are the storefront places, which often have the word "finance" or "financial" in their names, like Wells Fargo Financial (my very own CFL .)

I had so much else going on when my car loan hit that I can't isolate its effects out. concorduser got a whopping ding on his car loan sometime this winter, I think it was. But make some payments on it, and it seems to quickly lose its sting.

Message Edited by haulingthescoreup on 05-21-2008 03:30 PM

Re: Question about revolving credit utilization %

Anonymous — Thu, 22 May 2008 04:58:48 GMT

I agree with small fry. Have you tried calling Wamu and telling them you would like to transfer a balance, but need a CLI.

You could ask to go to 8K and after the transfer, that would keep you about 50% util. Shouldn't have any problems with that, and that may even help your score since your overall util would go down. It's worth a try!

Re: Question about revolving credit utilization %

RobertEG — Thu, 22 May 2008 05:12:58 GMT

FICO plan vs Financial plan.

The major consideration is when you plan to apply for new credit. Until then, your financial plan, as you have stated, is real money out of your pocket. Your FICO plan is just a number until you need to to app for credit.

As for FICO, overall %util and indiv card %util count the same.

Re: Question about revolving credit utilization %

Junejer — Thu, 22 May 2008 15:47:38 GMT

The way I see it, OP has both a FICO and Finacial plan. They happen to running concurrently. OP needs to have FICO score straight for his/her financial plan to come to fruition in a pretty short period of time.