Good payment habits will raise score after balance transfers


Speaking of Credit
Speaking of Credit columnist Barry Paperno
Barry Paperno is a freelance writer and credit scoring expert with decades of consumer credit industry experience, serving as consumer affairs manager for FICO (formerly Fair Isaac Corp.) and consumer operations manager for Experian. He writes "Speaking of Credit," a weekly reader Q&A column about credit scoring and rebuilding credit, for His writings about credit scoring have appeared in The Huffington Post, MSN Money, CBS Money Watch and other consumer finance websites.
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Question for the expert

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

Answer for the expert

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.

To alleviate at least one of your concerns, transferring balances to cards featuring lower rates does not in and of itself have a direct impact on your credit scores. But it does have an indirect impact on various factors that make up your scores:

Credit utilization. Had your balance transfers simply consisted of moving money among existing cards without opening or closing any, you would not likely have seen any impact to your ratio of balances to credit limits (credit utilization) that make up almost one-third (30 percent) of your score. While most of the scoring effect from having opened new cards will be addressed next under “length of credit history,” it’s a good bet that the new cards receiving those transferred balances either came with lower credit limits than the older, now-closed cards, or they received additional card balance transfers that led to a higher percentage of your available credit being utilized.

Length of credit history. Despite those two older cards now being closed, they can be expected to continue contributing positively to your credit score’s length of credit history category – which accounts for 15 percent of your score – because for the next 10 years or so they will remain on your credit report. That’s the good news. Where some score damage is likely to have occurred is with the addition of two new accounts lacking any history that essentially lowered the average age of the accounts on your credit report.

Hard inquiries. Though inquiries have only a minor impact on scores, with some types impacting scores more than others, every credit card inquiry has the potential to hurt your score by about five points on average. Only inquiries from loan – not credit card – applications can be grouped together and treated as a single inquiry by the score.

Now for the hard part of your question: How long will it be before my score will go up again? Here is where I’m afraid you’re going to be disappointed, since no one can really tell you how quickly a score can recover when, along with higher utilization, new account openings have occurred. This is due to at least some passage of time being required before your average account age can return to where it was when your score was higher; a time period that varies according to the number of accounts you have, how long you’ve had them and some additional factors.

So, without attempting to predict how long before you can reach 798 again, to raise your score as much as possible and as quickly as possible, there are a couple of positive actions you can take, along with a couple of easy-to-make mistakes you’ll want to avoid.

Actions to take

  • Pay as much as you can each month toward reducing those card balances, with preference given to cards carrying the highest utilization. As a goal, aim for coming in under 10 percent of the credit limit on each card currently carrying a balance.
  • If you have any cards opened more than a couple of years ago that haven’t received a limit raise in the past year, ask the card company to consider a credit limit increase. If successful, you could increase your credit availability, which could lower your utilization percentage – and raise your score. But only consider a limit increase if the bank can assure you they won’t pull a hard inquiry when making their decision. An additional inquiry could lower your score further – whether or not you're granted a credit limit increase.

Mistakes to avoid

  • While your current 746 score remains good enough to earn approval for most any type of credit, including a mortgage, you’ll want to avoid opening any new accounts and further lowering your average account age until your score is back to being where you want it to be.
  • Don't let your balances rise, even if you pay off what you charge every month. Card issuers generally send a monthly snapshot of your balance to the credit bureaus, and if that snapshot gets taken on a day before you pay your bill, it could negatively affect your credit utilization and your score. Consider paying multiple times a month, and if you want to use credit for a big-ticket item, pay it off immediately.

All this is to say that by simply returning to how you managed your credit before opening those new cards, transferring those balances and closing the older cards, there’s no reason why you can’t once again be looking at a score of 798 or higher. But when? Good question!

See related: How hard inquiries hurt your score

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Published: May 19, 2016

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Updated: 10-25-2016

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