How Will New Credit Card Balances Affect My Score?

[Anonymous]

I am currently sitiing with scores around 780.  I am in the process of refinancing my home and like a lot of others my LTV is too high.  My idea was to use some cash on hand to pay down my mortgage and take that cash back out on balance transfer credit cards.  If I take a new balance on my CC of about 75% of the available balance how will that affect me?  I currently do not carry any other balances, I only have a use it and pay it off card.  how long will it take my score to recover if it does drop?

[Anonymous]

Going from 0 to 75% utilization would be dramatic to your score I would think. Depends on your report but my guess would be at least 50 points.

The score drop is very temporary - as soon as you pay it down/off and the reports update, you'll get your points back.

[Anonymous]

50 points....Thats quite a bit......maybe i need to re think......but will it go up little by little as the percentage goes down?

[Junejer]

Hello Ejerms, and welcome to the forums. Please read Credit Scoring 101, if you haven't already.

There are certain thresholds that you must cross in order to give you a score boost. So, if you go from 75% util to 49% util, you should get a bump. Then when you go to 29% util, you will get another bump, then again at 9%. To recap, if you go from 75% util to 60% util, don't expect an increase.

Another option is timing the statement. If you can get an advance right after the statement cuts (and the CC reports to the CRAs), you can pay down the mortgage, have the mortgage company pull the credit reports, and the new high balances won't be reported yet. You can get the mortgage co. to do a payoff letter in that interim timeframe, which will reflect the new mortgage balance. This will take some research and skill on your part.

[RobertEG]

IMHO, not an effective FICO strategy.  Your percent util on installment/mortgage loans does not have anything near the impact on credit scoring as does %util on revolving (CC) debt.  To put a revolving CC account at 75% util in order to pay down an installment loan makes no sense to me.

[Junejer]

OP didn't say that he/she was looking for the best FICO strategy, he/she stated that they want to refinance their mortgage, but their LTV was too high and was considering advancing a CC to pay down the debt. We don't know all the facts, so how do we know that this isn't an effective strategy? If OP is able to bring the util back down in a few months, this may very well be a very effective financial strategy for them.

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RobertEG wrote:
IMHO, not an effective FICO strategy.  Your percent util on installment/mortgage loans does not have anything near the impact on credit scoring as does %util on revolving (CC) debt.  To put a revolving CC account at 75% util in order to pay down an installment loan makes no sense to me.

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[Red1Blue]

My suggestion, any cash you have in hand, hold on to it tight. Now a days every bank going out of business you want to hang on to your cash. Do not take cash on credit cards, especially if it is not an emegency. Save the cards for rainy day. Figure out a way to refinance the mortgage. There is a saying a bird in hand is worth two in bush.

[Anonymous]

I understand the phrasing.  I have pretty much went with the 0% credit card so I do not use all of my cash.  By doing this my theory is to pay down my mortgage enough to avoid pmi and uneccessary fees.  The goal of paying down the mortgage is not for my credit score as much as to save me some money in the future.  I do want to use the credit cards just do not want it to kill my score I am in the 775-800 range on all three bureaus.  I appreciate all of the thoughts.