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Is there a risk for a bank to pay off credit cards directly?

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DSTforlife
Regular Contributor

Is there a risk for a bank to pay off credit cards directly?

I have been reading about people using personal loans and the bank providing the loan paying the credit card company directly.  Is this looked at favorably or unfavorably by the credit card companies? 

 

It seems like a company like Amex would get spooked if a finance company sent them a check to pay off a balance.  I know it would be to the benefit of Amex because there's no balance, but would Amex consider the account holder to be a greater risk to them since they are basically financing their credit card payoff?

 

I'm just curious and bored.....

 

 

Message 1 of 5
4 REPLIES 4
FinStar
Moderator Emeritus

Re: Is there a risk for a bank to pay off credit cards directly?


@DSTforlife wrote:

I have been reading about people using personal loans and the bank providing the loan paying the credit card company directly.  Is this looked at favorably or unfavorably by the credit card companies

 

It seems like a company like Amex would get spooked if a finance company sent them a check to pay off a balance.  I know it would be to the benefit of Amex because there's no balance, but would Amex consider the account holder to be a greater risk to them since they are basically financing their credit card payoff?

 

I'm just curious and bored.....


Neither. They're simply receiving a payment -- so as long as the payment is honored and not cancelled/stopped. The bank's payment processing systems aren't pondering on what it means or sit there and talk amongst themselves where the source of funds came from.

 

Where a lender may see a potential risk, and it really depends, is if your utilization factors all of a sudden spiked -- not just with a new PL reporting but also other cards/tradelines that may show signs of overextension.

Message 2 of 5
OmarGB9
Community Leader
Super Contributor

Re: Is there a risk for a bank to pay off credit cards directly?


@FinStar wrote:

@DSTforlife wrote:

I have been reading about people using personal loans and the bank providing the loan paying the credit card company directly.  Is this looked at favorably or unfavorably by the credit card companies

 

It seems like a company like Amex would get spooked if a finance company sent them a check to pay off a balance.  I know it would be to the benefit of Amex because there's no balance, but would Amex consider the account holder to be a greater risk to them since they are basically financing their credit card payoff?

 

I'm just curious and bored.....


Neither. They're simply receiving a payment -- so as long as the payment is honored and not cancelled/stopped. The bank's payment processing systems aren't pondering on what it means or sit there and talk amongst themselves where the source of funds came from.

 

Where a lender may see a potential risk, and it really depends, is if your utilization factors all of a sudden spiked -- not just with a new PL reporting but also other cards/tradelines that may show signs of overextension.


Thus. @DSTforlife, payments are all automated and processed by a computer. The computer doesn't care where the funds came from as long as the check/ACH clears.


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Message 3 of 5
DSTforlife
Regular Contributor

Re: Is there a risk for a bank to pay off credit cards directly?

Thank you for your responses. I didn’t think about their computers not knowing where the payment came from. However, I do wonder if there’s anything in the credit card bank systems that flag if the payment comes from certain institutions. Since all financial institutions have a unique routing number, they technically can trace the payment origination. I also wonder how the new FICO 10T scores it….if there’s something in the algorithm that notices a trend with a new installment loan and the sudden large decrease in credit card balances. When I’m bored, I tend to overthink stuff. Sorry if my random questions/thoughts seem silly.
Message 4 of 5
FinStar
Moderator Emeritus

Re: Is there a risk for a bank to pay off credit cards directly?


@DSTforlife wrote:
Thank you for your responses. I didn’t think about their computers not knowing where the payment came from. However, I do wonder if there’s anything in the credit card bank systems that flag if the payment comes from certain institutions. Since all financial institutions have a unique routing number, they technically can trace the payment origination. I also wonder how the new FICO 10T scores it….if there’s something in the algorithm that notices a trend with a new installment loan and the sudden large decrease in credit card balances. When I’m bored, I tend to overthink stuff. Sorry if my random questions/thoughts seem silly.

Their systems simply capture the image, encode it and process it. Potential flags or issues could be if the payment is rejected or NSF, the encoding or MICR data is invalid or if the payment instrument is fictitious or fraudulent.

 

As far as FICO 10T, I think you're overthinking things. Plus, it's too early to tell how these metrics impact different elements on a credit file. There's a lot of moving parts so any derived outcomes will need to be tracked and measured to see how that impacts your overall scores when compared to the other versions.

Message 5 of 5
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