topic Re: Balance transfer in Understanding FICO® Scoring

Balance transfer

Anonymous — Fri, 13 Feb 2009 19:31:46 GMT

I am thinking of doing a balance transfer. My questions are will this affect my fico score? The card I would like to transfer the balance from has a much higher limit than the card I would like to transfer the balance to, what if problems would this cause on my Fico score?

Re: Balance transfer

oracles — Fri, 13 Feb 2009 20:50:02 GMT

Hi biggiet and welcome to the forums.

First you need to ask what is more important, saving money or your fico score.

If it is saving money than definitely do the BT. I am assuming the card you are going to use has a lower apr than the card it is on now. Your scores will rebound and you will have saved money.

in today's times, to me, saving money is more important. But to each its own. You maybe trying to get a house.

If that is the case, and scores are more important, you will experience a decrease in score due to individual util% of the card increasing. You need to tell us the limit on the card it is on now and the limit of the card it will be on.

Maybe you can ask for cli on other cards to try to offset the increase in util% for that particular card. This will decrease overall util% on all cards therefore giving you back points.

Hope this helps

Re: Balance transfer

Anonymous — Sun, 15 Feb 2009 01:40:31 GMT

The limit on one card is 28,000 whereas the other is only 8500. I think having a better fico score is more important to me. It took me a long time to get where I am from having no credit as a teenager to having excellent credit now.

Re: Balance transfer

RobertEG — Sun, 15 Feb 2009 07:20:50 GMT

In making this decision, you will get a lot of opinions.

I only offer this simple advice.

Unless you are thinking of applying for new credit in the near future, then **bleep** the FICO impact and go with the financial $$$ benefit. FICO scores dont mean diddly until you are actually applying for new credit. They are like the waning moon, reset by the new day of dawn.

Re: Balance transfer

Anonymous — Sun, 15 Feb 2009 12:41:28 GMT

@RobertEG wrote:
In making this decision, you will get a lot of opinions.
I only offer this simple advice.
Unless you are thinking of applying for new credit in the near future, then **bleep** the FICO impact and go with the financial $$$ benefit. FICO scores dont mean diddly until you are actually applying for new credit. They are like the waning moon, reset by the new day of dawn.

I'm dittoing! I did a lot of BT's when I was getting rid of my credit card debt, and I didn't care about the effect on my FICO scores, granted I also did a lot of the BT'ing before I started checking my credit, but at the time scores weren't important, getting rid of my debt and saving money was. I am going to be going for a mortgage this year and now my score is starting to be more important to get me a better interest rate.

But if you're not applying for credit, the effect on your FICO score will only be as long as your card has high util. Scores bounce back very quickly when the util gets better.

Re: Balance transfer

cobaltnv — Mon, 16 Feb 2009 20:47:15 GMT

I agree with all that has been said here. A little more info might help provide a more complete picture from which you can make your decision. What are the limits, balances, and interest rates on your credit cards? How large is the balance you are thinking of transferring? Are you planning any major purchase in the next few years? What are the terms of the BT? What are your current Fico scores?

Sorry for the barrage of questions, but these are the thing that will help get you the best/most complete advice.

Cheers

Re: Balance transfer - New impact for 2010??

Anonymous — Tue, 26 Jan 2010 19:05:04 GMT

Looks like this thread is a year old so I thought I'd ask.

I seem to recall hearing something about Balance Transfers (a.k.a. the loan shell game) impacts your
FICO neg. this year (2010).

I have an amount on a card, opened exclusively for a major home appliance, that comes due in May 2010.

Its' terms were/are 0% interest for 1 year, No payments for 1 year.

Of course if I don't pay it in full at the end of that year (5/2010) then then all interest applies. OK, fine I can do that.

Now I get a credit card offer in the mail, from the same C.C. company offering 0% on all balance transfers till 01/01/2011

if they are postedby 4/1/2010. Obviously I'll have to make payments though.

It's like the stars are in perfect aligmnent here, to the point I'm checking everything twice so as not to get burned.

Will doing the transfer impact my score as I've heard?.

Re: Balance transfer - New impact for 2010??

llecs — Tue, 26 Jan 2010 20:21:12 GMT

MostCurious wrote:
Looks like this thread is a year old so I thought I'd ask.

I seem to recall hearing something about Balance Transfers (a.k.a. the loan shell game) impacts your
FICO neg. this year (2010).

I have an amount on a card, opened exclusively for a major home appliance, that comes due in May 2010.
Its' terms were/are 0% interest for 1 year, No payments for 1 year.
Of course if I don't pay it in full at the end of that year (5/2010) then then all interest applies. OK, fine I can do that.
Now I get a credit card offer in the mail, from the same C.C. company offering 0% on all balance transfers till 01/01/2011
if they are postedby 4/1/2010. Obviously I'll have to make payments though.
It's like the stars are in perfect aligmnent here, to the point I'm checking everything twice so as not to get burned.
Will doing the transfer impact my score as I've heard?.

BTs alone have no impact on your FICO score. Now, as it has always been, if you open a new CC to do the balance transfer, you will see a score hit due to the inquiry, the new credit, and the impact to your average age. Any damage is somewhat minimal (I've lost an avg. of 20-25 pts for each new CC reporting) and you'd usually regain most, if not all, of the points within a year.

Re: Balance transfer - New impact for 2010??

Jazzzy — Wed, 27 Jan 2010 01:14:16 GMT

@Anonymous wrote:
Looks like this thread is a year old so I thought I'd ask.

I seem to recall hearing something about Balance Transfers (a.k.a. the loan shell game) impacts your
FICO neg. this year (2010).

I have an amount on a card, opened exclusively for a major home appliance, that comes due in May 2010.
Its' terms were/are 0% interest for 1 year, No payments for 1 year.
Of course if I don't pay it in full at the end of that year (5/2010) then then all interest applies. OK, fine I can do that.
Now I get a credit card offer in the mail, from the same C.C. company offering 0% on all balance transfers till 01/01/2011
if they are postedby 4/1/2010. Obviously I'll have to make payments though.
It's like the stars are in perfect aligmnent here, to the point I'm checking everything twice so as not to get burned.
Will doing the transfer impact my score as I've heard?.

As said above, you will have a ding for an inquiry and for a new account. It will also lower your Average Age of Accounts (AAoA).

All that may still be worth it for you.

That said, what is your total utilization percentage? I ask, because my caution would be that you not tempt adverse action (AA) from your other credit card companies. We've seen credit lines lowered and accounts closed as a result of red flags picked up by keeping utilization too high or by maxing a credit card. I don't know if a BT could trigger AA, but it's something to consider.

Re: Balance transfer - New impact for 2010??

Anonymous — Wed, 27 Jan 2010 17:59:01 GMT

Thanks for the perspective IIecs and Lynette, good food for thought.

With that thought, I've decided to pay the 1st C.C.(0%/NoPay for 1yr @ 69Util/10k & possible retro-19.5%) off instead of transfering its' single-use balance to a new 0%. I have enough C.C.'s, most not used, and the main reason I went with this offered method was to get what I wanted, keep my money close, and ride out UnEnjoyment all while using their money free, for a year. That goal was met, I can now part with the money that I didn't want to a year ago.

Plus with the 3% xfer fee they'd get a return > the principle owed, which defeats my goal of using their money for free.

I might be in the market for a house in a year as well and with this CC and an another one opened last year I think it's best to spread the usage of them around, paying ea. in full, rather then decreasing my AAoA again.

Thanks again, very helpful!

Re: Balance transfer

Anonymous — Wed, 27 Jan 2010 20:11:29 GMT

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.

Re: Balance transfer

Junejer — Wed, 27 Jan 2010 20:18:51 GMT

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.

Re: Balance transfer

Anonymous — Wed, 27 Jan 2010 21:26:57 GMT

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.

Re: Balance transfer

Jazzzy — Thu, 28 Jan 2010 00:45:39 GMT

@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.

Re: Balance transfer

Junejer — Thu, 28 Jan 2010 16:24:34 GMT

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

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.

Re: Balance transfer

RobertEG — Fri, 29 Jan 2010 05:10:13 GMT

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