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Balance Transfer vs Pay Off for Credit Score

jeboles
New Contributor

Balance Transfer vs Pay Off for Credit Score

Tax time is upon us and I want peoples opinion if this is a wise idea.  I have 5 credit cards each with about $1,000 limit that are basically maxed out.  I was thinking about opening a NFCU secured card for $6,000 and balance transfer the other cards and close them out.  I am banking on it graduating and then paying it off.  Wise idea?

Message 1 of 21
20 REPLIES 20
SouthJamaica
Mega Contributor

Re: Balance Transfer vs Pay Off for Credit Score


@jeboles wrote:

Tax time is upon us and I want peoples opinion if this is a wise idea.  I have 5 credit cards each with about $1,000 limit that are basically maxed out.  I was thinking about opening a NFCU secured card for $6,000 and balance transfer the other cards and close them out.  I am banking on it graduating and then paying it off.  Wise idea?


I really can't understand the logic behind doing this.  If you have $6k on hand which you could deposit to secure an NFCU secured card, you should just skip the whole thing and pay the 5 cards off.

 

 


Total revolving limits 689000 (587000 reporting) FICO 8: EQ 715 TU 712 EX 695

Message 2 of 21
jeboles
New Contributor

Re: Balance Transfer vs Pay Off for Credit Score

I am mainly asking if their might be a reason to do it score wise.  It was just a random thought that popped in my head.

Message 3 of 21
AverageJoesCredit
Legendary Contributor

Re: Balance Transfer vs Pay Off for Credit Score


@SouthJamaica wrote:

@jeboles wrote:

Tax time is upon us and I want peoples opinion if this is a wise idea.  I have 5 credit cards each with about $1,000 limit that are basically maxed out.  I was thinking about opening a NFCU secured card for $6,000 and balance transfer the other cards and close them out.  I am banking on it graduating and then paying it off.  Wise idea?


I really can't understand the logic behind doing this.  If you have $6k on hand which you could deposit to secure an NFCU secured card, you should just skip the whole thing and pay the 5 cards off.

 

 


This

Message 4 of 21
AverageJoesCredit
Legendary Contributor

Re: Balance Transfer vs Pay Off for Credit Score


@jeboles wrote:

I am mainly asking if their might be a reason to do it score wise.  It was just a random thought that popped in my head.


Your score will improve simply by paying off your debt and leaving one with a small reporting balance. 

Message 5 of 21
Jnbmom
Community Leader
Super Contributor

Re: Balance Transfer vs Pay Off for Credit Score

I agree with @SouthJamaica 

 

Financially that makes zero sense . Pay off your cards .

EXP 778 TU790 EQ 752
Message 6 of 21
thornback
Senior Contributor

Re: Balance Transfer vs Pay Off for Credit Score


@jeboles wrote:

I am mainly asking if their might be a reason to do it score wise.  It was just a random thought that popped in my head.


It really doesn't make sense scorewise either.   You'll potentially take a hit for a new account and the associated inquiry, and definately for single card with high util once all balances are transferred to it so any score gains from eliminating your debt from the other 5 cards will be reduced once the new Navy card reports.  Scorewise, your best bet is to pay your 5 cards off as you will see the greatest increase from reducing your debt  - especially since all cards are near-maxxed.    The only way it makes sense to transfer all debt to a new card is if you didn't have the funds available to pay -- which is obviously not the case for you since you would have to use cash to secure a secured card...

 

 

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Message 7 of 21
SouthJamaica
Mega Contributor

Re: Balance Transfer vs Pay Off for Credit Score


@jeboles wrote:

I am mainly asking if their might be a reason to do it score wise.  It was just a random thought that popped in my head.


No, it would be worse for your scores. You'd be getting a new account for no reason, thus lowering your average age of accounts and resetting your age of newest account, and you would still have an almost-maxed-out account. Paying off the maxed out cards and not adding a new account would be much better for your scores.


Total revolving limits 689000 (587000 reporting) FICO 8: EQ 715 TU 712 EX 695

Message 8 of 21
NRB525
Super Contributor

Re: Balance Transfer vs Pay Off for Credit Score


@jeboles wrote:

Tax time is upon us and I want peoples opinion if this is a wise idea.  I have 5 credit cards each with about $1,000 limit that are basically maxed out.  I was thinking about opening a NFCU secured card for $6,000 and balance transfer the other cards and close them out.  I am banking on it graduating and then paying it off.  Wise idea?


What is your APR on the existing cards? Are any of them on zero APR plans?

What is the APR on the NFCU secured card?

 

Are you not able to get an unsecured NFCU card?

 

What is the general consensus regarding NFCU secured cards graduating? If they graduate 90% of the time, then I think long term this strategy has good reasons to proceed. 

If OP applies for a NFCU card at some point in the future, then the INQ and new card penalty are already baked in to the expected score. Whether that INQ and new card penalty are taken now or later, makes no long term difference. 

if OP has no path to an unsecured NFCU card in the short term, then setting up the secured NFCU card with the plan to graduate later, gets to the same long term objective.

 

I'm guessing there is an APR savings by moving to the secured NFCU card.

 

While OP may be able to pay off all the cards rather than opening the secured NFCU card, having the secured card gives OP access to the same funds to achieve the payoff of the other cards, so even the near term effect is nearly the same... except that OP also has a secured NFCU card that can graduate later on, at a lower APR now, and INQ and new card penalties that age off over time. Placing the funds for security on this new card doesn't lose the funds, OP will get the $6,000 back at some point in the future.

High Bal Jan 2009 $116k on $146k limits 80% Util.
Oct 2014 $46k on $127k 36% util EQ 722 TU 727 EX 727
April 2018 $18k on $344k 5% util EQ 806 TU 810 EX 812
Jan 2019 $7.6k on $360k EQ 832 TU 839 EX 831
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Message 9 of 21
jcooks
Frequent Contributor

Re: Balance Transfer vs Pay Off for Credit Score

But paying off all the cards immediately will free up those cards to use, plus also gets his utilization down and should see a huge increase in score if no other negatives.  Then he would have a much better chance of getting an unsecured card from NFCU and still be ahead.  I would recommend paying off the cards, keep utilization low for a few months then apply for an unsecured NFCU card.

Message 10 of 21
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