40 point score plummet following a balance transfer.

[Anonymous]

Hi Guys,

Long time lurker, first time poster. I have a bit of a conundrum that I’d like to float by everyone on this awesome forum. Approximately 5 months ago, I was roughly 16k in credit card debt. I was approved for a 12k personal loan which brought my CC debt to approximately 4k. I’ve never missed a payment of any kind, knock wood, and I consistently review my reports for errors, collection notices, etc. After using the personal loan to pay down my debt, my scores shot up to the high 760s across the board. Fast forward to about a month ago, I’ve utilized one of the cards which was paid off since it was offering a balance transfer 0% apr.

Approximately 2k of my now 6k debt was transferred over to this card’s 4k limit. I’ve been using my cards regularly but admittedly, not paying them off in full, but usually more than the minimum. Since I’ve transferred this balance, my scores have plummeted approximately 40 or so points. I’m now in the low 720s. I was going to pursue an auto loan in the next month or so but I’ve decided to hold off until my scores rebound. Any idea as to why the scores dropped so much? I’m only making the assumption that balance transfer caused this plummet as the MyFico alerts showed the new balance transferred to this previously inactive, paid off card along with the decrease of the scores.

My cards have a mix of utilizations. 10%, 50%, 45%, and another which is a charge card that is permitted a 35k balance. I’m only using about 2k of this balance. The remaining cards are paid off. I’m just unsure as to why transferring balances to a card which was previously inactive could hurt my scores so much. Any advice would be greatly appreciated.

Cheers!

[jeffm4688]

I think this might be better suited in the FICO scoring forum and will probably end up moved.

Auto loan wise - 720+ is enough to get basically the best terms when financing, consumerate with amount financed and the cars value.

Credit score wise - FICO is a weird finicy beast, I don't think there is enough info to truly determine why you would lose 40 points, but it could be a number of factors. Card scoring could change the numbers of course, as fico pays attention to aggregate credit card util as well as util on each individual card. It could be possible that you have one card which has too high of a balance which made it drop(albiet unlikely though unless it's maxed) or a number or cards with too high of balances.

Installment loans count too, ironically it seems that as you pay them down your score goes up, but when they close you lose the point benefit, did anything change installment loan wise aside from you adding the new one?

[Anonymous]

It sounds like transferring the balance made the card go from 0% utililzation to 50% utilization. You took a card that was in good standing and now put it way over the recommended 30% threshold, although anything over 9% utilization can cause a decline in scores if the card was previously under that mark. Individual card utilization plays a role just like overall utilization does. Best to keep all cards but one at 0% and let that 1 card that does report have a utilization under 10%.

[redbeard]

I'll take a wild guess that you had both balances reporting for a while, artificially showing higher utilization then reality.

Basically, you used card A to pay off card B and card C. Card A reports and shows its balance, but card B and C haven't reported the new '0' balance yet.

If that is the case, some, if not all, of the points will come back as the other cards report. It might take a few months to capture the rest of the points back. Don't ask why, just seems to work that way.

Dan

[bdhu2001]

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@Anonymous wrote:

Hi Guys,

Long time lurker, first time poster. I have a bit of a conundrum that I’d like to float by everyone on this awesome forum. Approximately 5 months ago, I was roughly 16k in credit card debt. I was approved for a 12k personal loan which brought my CC debt to approximately 4k. I’ve never missed a payment of any kind, knock wood, and I consistently review my reports for errors, collection notices, etc. After using the personal loan to pay down my debt, my scores shot up to the high 760s across the board. Fast forward to about a month ago, I’ve utilized one of the cards which was paid off since it was offering a balance transfer 0% apr.

Approximately 2k of my now 6k debt was transferred over to this card’s 4k limit. I’ve been using my cards regularly but admittedly, not paying them off in full, but usually more than the minimum. Since I’ve transferred this balance, my scores have plummeted approximately 40 or so points. I’m now in the low 720s. I was going to pursue an auto loan in the next month or so but I’ve decided to hold off until my scores rebound. Any idea as to why the scores dropped so much? I’m only making the assumption that balance transfer caused this plummet as the MyFico alerts showed the new balance transferred to this previously inactive, paid off card along with the decrease of the scores.

My cards have a mix of utilizations. 10%, 50%, 45%, and another which is a charge card that is permitted a 35k balance. I’m only using about 2k of this balance. The remaining cards are paid off. I’m just unsure as to why transferring balances to a card which was previously inactive could hurt my scores so much. Any advice would be greatly appreciated.

Cheers!

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You have a few things affecting your score.  The biggest is that you took a 0% usage card and changed it to 50%.  In addition, you increased your overall utilization. The best way to have the highest score is to have only one credit card with a balance and for the utilization on that card to be at a max of 30%.  If the card has 10% or less, it's even better.

When you get these 0% offers, you have to ask yourself what do you want more:  the savings from 0% or a higher FICO score.  If you plan on a purchase that requires your best score, then make the purchase first.  The offers for the 0% will always come in the mail.  

When looking at the 0% offers, be sure to calculate the cost of the transfer.  Many times there is a minimum transfer fee $5-$50 or 5% whichever is higher and the fee is upfront.  Thus, the 0% is really 5%.  some cards even have a minimum fee until you pay off the balance.  Usually 50 cents.  Anyway, decide the actual cost and what your current goal is before you jump on offers.

[Anonymous]

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@redbeard wrote:
I'll take a wild guess that you had both balances reporting for a while, artificially showing higher utilization then reality.

Basically, you used card A to pay off card B and card C. Card A reports and shows its balance, but card B and C haven't reported the new '0' balance yet.

If that is the case, some, if not all, of the points will come back as the other cards report. It might take a few months to capture the rest of the points back. Don't ask why, just seems to work that way.

Dan

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^^^^ THIS. 

[Anonymous]

You lose points for carrying balances on mulitple cards and even more points as their balances exceed approximately 10%, 30%, 50% and 75% of their individual credit limits and possibly as your overal utilization increases as well.  I guess maybe you shouldn't look at them as lost points.  In reality credit cards are issued with the intent that they will be used responsibly.  Look at it as if you get extra points as you drop below each of the previously mentioned thresholds.  I just lost 6 points because I accidently let one of my cards that usually has a $0 balance report $87.  The CL on that card is $1,500.

[Anonymous]

Thanks for the replies everyone! Based on what I've ascertained from all the input, I "messed myself up", at least in the short term, by transferring balances. In effect, I raised the utilization of a 0% utilized card to 50%, just by making this balance transfer. Although in the long run, I'll save money on interest paid to the transferred debts, in the short term, my scores will be effected. Going back to what bdhu2001 said, the 0% offers will always come in the mail. The higher FICO scores were what I wanted, in the case of the auto loan(lease). I'll put this on hold until I drop the utilization of these cards back down and my scores recover. Thanks so much everyone!