Category Archives: Balance Transfers

Can balance transfers boost your credit score?

This post originally appeared April 19, 2018 on CreditCards.com as “Individual vs. combined utilization: Which one has greater effect on score?

By Barry Paperno

Dear Speaking of Credit,
I recently paid off a number of credit cards, but I still have some with 90 percent utilization. My overall credit utilization is about 48 percent.

Should I transfer some of the balance from the high utilization credit cards to the ones with zero balance?

I was not sure what helps my credit score more – more cards with $0 balances or more with a lower utilization?

Transferring balances won’t impact my overall utilization. Since I paid them down as much as I could, in the end I will still be at 48 percent. – Matthew

Dear Matthew,
It’s always great to hear of credit cards being paid off. And it can be great for your score when they continue to be used and paid in full every month.

Yet there are times when transferring a balance from a “highly utilized” card to one that was recently paid off can make sense, whether money-wise or score-wise.

Credit utilization – the amount you have borrowed compared to your credit limits, where lower is always better – is the second most important factor in credit scoring calculations, after making on-time payments.

For instance, taking advantage of a lower interest rate via a balance transfer can be an effective way to save on interest and pay down the debt faster.

Or if moving balances to optimize your score is the goal, transferring debt from a low-limit card to one with a higher limit can often add a few points to your score, as part of the individual utilization calculations that we will be the focus of this discussion.

It is understandable you would question whether having more cards with $0 balances or more with lower utilization is best for your score. Unfortunately, and as you’ll see, the answer is not an easy one.
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Can balance transfer before a major purchase be a bad idea?

This post originally appeared February 15, 2018 on CreditCards.com as “‘How a balance transfer can negatively impact your credit score

By Barry Paperno

Dear Speaking of Credit,
Please help! I have had a 750 or higher credit score for years. I pay on time, and keep a balance on one or two cards. Recently, I received a notice from Experian that my credit score was reduced by 47 points! I am completely panicking as I work hard to maintain it.

I called Experian, and they literally cannot figure it out. This is obviously frustrating as they are the ones who are lowering my score.

I believe it was caused somehow by my accepting an offer for a Wells Fargo 0 percent interest card, and doing a balance transfer. I used the Wells card’s credit limit – $8,000 – to pay off two other cards – my AmEx and my Citi Diamond card, which have now a zero balance.

Can you help me figure out what caused this? I was under the impression I would get a better score as I increased my credit availability overall by $8,000 but did not increase my debt.

I am buying a car soon. I am terrified this will affect me negatively. Thank you so much for your help. – Kirk

Dear Kirk,
Despite Experian’s understandable difficulty in accounting for your 47-point score loss, you appear to have hit the nail right on the head. Your score drop was no doubt caused by the opening of that Wells Fargo card and the balances transferred to it.

From a common-sense standpoint, you did the right thing by accepting this 0-interest card offer, especially since you had existing card balances incurring (probably) high interest. But from a credit scoring standpoint and considering you’ll be looking to finance a car soon, it might not have been the best timing.

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Balance transfer will save money; what will it do to my score?

This post originally appeared November 23, 2017 on CreditCards.com as “‘How a balance transfer to 0 percent card affects score

By Barry Paperno

Dear Speaking of Credit,
My wife and I have recently gotten our scores into the 700s again. We both got new cards. Mine is 0 percent APR for 21 months. Hers has great flight miles (she has higher-interest cards she would like to transfer to hers as well).

But when I use Capital One’s credit score simulator, it says I would kill my score by 40 points if I transfer balances to the new card. The same thing happens to my wife’s score.

My old cards have high interest. Everywhere I read, it says balance transfers should not hurt.

I’m very concerned about this. What gives? Thanks in advance for your time. – Scott

Dear Scott,
It’s good to hear of your successful credit rebuilding results. You’re now experiencing at least one of the perks of a higher score: qualifying for a 0 percent balance transfer card. Good work!

So, why if your score is supposedly on the upswing should it then drop by 40 points, as the simulator predicted, when all you’ve done is move existing high-interest balances to a new lower interest rate card?

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Plenty to consider when combining card balances

This post originally appeared September 7, 2017 on CreditCards.com as “‘Q&A: How to combine existing card balances without hurting score

By Barry Paperno

Dear Speaking of Credit,
I have three credit cards through one company. If I combine them all into one, the one I’ve had the longest and that has the lowest interest rate, will that hurt my credit? – Harmony

Dear Harmony,
You certainly have the right idea, transferring your higher-interest balances onto the lower-interest card. Not only will you apply more of your monthly payments to principal and less on interest, but you will have to make one, not three, of them each month. Good move!

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Balance transfer could hurt your high score. Do it anyway.

This post originally appeared May 25, 2017 on CreditCards.com as “‘Balance transfer plus new debt will lower your credit score

By Barry Paperno

Dear Speaking of Credit,
I have $12,000 on a Wells Fargo card and $8,000 on a Citi card, plus I need to use about $10,000 more to move across country to work on my doctorate. My scores are Equifax, 765; Experian, 797; and TransUnion, 755. I have a couple of other cards that I’ve had a long time with a $0 balance on them.

I can easily do a $0 balance transfer on them and get what I need to get me moved, plus pay off the existing two cards. I’m really worried about how much this will make my credit score go down if I have an extra $10,000 on a credit card.

I don’t want my score to change too much because I’ve got to rent a place there, too. Is there a way to determine or calculate how much my score would go down? – Jacky

Dear Jacky,
One of the things that make credit scoring such an intriguing puzzle for many of us is that, no, there isn’t a reliable way to calculate how many points are likely to be lost or gained by a specific action. But we can get close if you’ll bear with me.

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Consolidation loan, not BT, may be your best bet

This post originally appeared May 11, 2017 on CreditCards.com as “‘Loan can boost score faster than balance transfer deal.”

By Barry Paperno

Dear Speaking of Credit,
I was offered a balance transfer and a $3,000 raise on my credit line on a card I already have, no hard inquiry. I transferred $1,900 (39 percent use); $600 (38 percent); $1,050 (59 percent); and $400 (5 percent) from different cards to the card that had 66 percent use before limit increase. Now I have seven credit cards at or below 5 percent and the one probably at or near 100 percent with a lower APR than the transfers.

I  also have other things on my credit: a loan with set repayment one-third paid off, and a furniture account that shows as a credit card at about 50 percent use. My credit score is now 668, before all this goes through. What do you think I can expect?

Also, the original balance on the card used for transfers will take my payment first, and, by the time I get to the end of the promotion I will still be paying on that original balance. But the APR is still lower than on the transferred balances. Should I seek to transfer that balance at some point to get a better APR? Or would a new card or loan be better? – Diane

Dear Diane,
Despite all of your hard work reducing the credit utilization percentages (balance/credit limit) on most of your cards, and even though that $3,000 credit-limit increase may have helped slightly, I wouldn’t expect to see a score increase of more than a few points from this balance transfer.

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Maxing-out credit limit for balance transfer can hurt score

This post originally appeared December 8, 2016 on CreditCards.com as “With balance transfers, watch your individual card utilization

By Barry Paperno

Dear Speaking of Credit,
One of my older cards is offering me a 0 percent interest rate until May 2018. I’m tempted to transfer my Wells Fargo card balance of $4,750 at 9.5 percent to it. It will be the second time this year that I’ve moved money to take advantage of a 0 percent offer. Will my score take a hit or not? Note that these two cards in question are already on my credit report. – Heather

Dear Heather,
Whether your score takes a hit will likely hinge on a seldom discussed set of card utilization (balance/credit limit percentage) calculations within the “credit utilization” scoring category – the individual card calculation.

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High score dropped to still-high score after balance transfer

This post originally appeared May 19, 2016 on CreditCards.com as “Good payment habits will raise score after balance transfers

By Barry Paperno

Dear Speaking of Credit,
My credit score dropped from 798 to 746 due to balance transfers to two new credit cards that had lower interest rates … closing the two old ones, of course. Question: If I continue to pay my cards on time and keep the balances well below my limit, how long will it be before my score will go up again? I was not aware transferring to lower interest rate cards could affect your credit score. – Mable

Dear Mable,
After years of taking good care of your credit and recently having made the smart move of securing lower interest rates for your credit card debt, I don’t blame you for being concerned over how long it will be before your score goes up again. Yet the many factors at work in a credit score make assessing prior score damage a more accurate task than predicting the timing of future score increases. Still, we can chart you a course that can take your score as high as possible in as short a time as possible, however long the credit-scoring gods determine that to be.

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Moving card debt to personal loan or new 0% cards?

By Barry Paperno

Dear Speaking of Credit,
I currently own a debt of $7000. A few months back I transferred this debt over
to a couple of new CC – Slate and Citi – both of which offered me 0% APR for
fifteen and twenty two months, respectively. Meanwhile my bank, Wells Fargo,
offers me a $7000 personal loan @ 14% APR 36 months, montly payments $240.

Obviously personal loans are tempting and present both pros and cons.
My question being as to your view regarding personal loans and would
it be better in this case to pay down these debts monthly over their
respective 0% APR periods so as to keep them open and continue to
show activity, timely monthly payments etc vs paying them all off in one
shot which clearly shows you took the loan out to consolidate debt? -Carl

Dear Carl,
First, I’m going to figure you have good credit scores to be offered those good deals. And for those scores to be good with $7,000 of (I’m assuming) card debt, your low credit card utilization must be the result of a large amount of available credit. You’re clearly doing a good job of managing your credit, and looking before you leap, as you’re doing here, is being smart.

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Move card balance to personal loan or 0% card?

By Barry Paperno

Dear Speaking of Credit,

I currently own a debt of $7000. A few months back I transferred this debt overto a couple of new CC – Slate and Citi – both of which offered me 0% APR for

fifteen and twenty two months, respectively. Meanwhile my bank, Wells Fargo,
offers me a $7000 personal loan @ 14% APR 36 months, montly payments $240.
Obviously personal loans are tempting and present both pros and cons.
My question being as to your view regarding personal loans and would
it be better in this case to pay down these debts monthly over their
respective 0% APR periods so as to keep them open and continue to
show activity, timely monthly payments etc vs paying them all off in one
shot which clearly shows you took the loan out to consolidate debt? – Carl

Dear Carl,

First, I’m going to figure you have good credit scores to be offered those good deals. And for those scores to be good with $7,000 of (I’m assuming) card debt, your low credit card utilization must be the result of a large amount of available credit. You’re clearly doing a good job of managing your credit; and looking before you leap, as you’re doing here, is being smart.

To provide the best answer to your question it would be good to know something about your financial plans over the next couple of years, e.g. buying a car, house or retiring. This would tell me if your credit score is highly important, which would be the case if you’re buying a home, or if you’re looking to reduce your debt, increase your cash flow, etc. Personally, I’m a big fan of saving money on interest, as long as your credit score stays as high as necessary to obtain financing at the best rates when you need it.

Since you seem to be able to get those good rates and terms, my suggestion would be to take advantage of that zero percent money for as long as you can. That is, do so unless you’re in a cash flow crunch and need to reduce the minimum monthly payments, e.g. via consolidating, to something lower than those 0% cards will require. If you can take advantage of that free 15-22 month funding, then when those promotional periods run out consolidate the debt into a personal installment loan at an interest and monthly payment rate that makes sense for your needs.

Are you concerned about letting those card or loan offers get away? I wouldn’t, figuring that if you’re being offered those great deals now, they will also be available after 15-22 months, as long as your scores remain high. Which they should do, since there is nothing about making minimum payments on those cards that should hurt your score (from where it is now), other than the slight temporary drop anytime you open a new card or loan. Still, though, don’t do any of this if you’re planning to buy a house in the next 6 months.

Lastly, there’s nothing in the scoring that considers whether you have consolidated your debt. So, don’t give that a second thought.