Shifting debt from credit cards through a mortgage refi

The move could help your credit score, if you don't go charging again

By Jane McNamara

Let's Talk Credit
Let's Talk Credit columnist Jane E. McNamara
Jane E. McNamara is president and chief executive officer of GreenPath Debt Solutions, a nationwide, not-for-profit, providing financial literacy through consumer education and counseling for more than 50 years. For financial literacy tips and assistance visit GreenPath on Facebook or YouTube.
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Question for the expert

Dear Let's Talk Credit,
I refinanced my auto loan in October of 2013 and then refinanced my home mortgage in February 2014. Because of all my debt, my auto loan interest rate wasn't very low. However, I was able to pay off all of the debt from the home refinance. How long will it take for the zero balances to appear on my credit report? How long should I wait to refinance my auto loan for a more favorable interest rate? -- Lisa

Answer for the expert

Dear Lisa,
Generally speaking, creditors will report your specific account activity to the credit bureaus monthly. So, depending on the day your creditors report, your accounts should reflect paid in full with zero balances 30 days or so after payments were made. Keep in mind that by paying off the debt using your home refinance, you have transferred the debt, not actually paid it. The total amount of your debt will remain the same, just as part of your mortgage now instead of separate credit accounts.

Amounts owed on accounts make up about 30 percent of your FICO credit score. Part of what is considered in amounts owed is your credit utilization ratio, which compares how much credit you've been extended to how much of it you have used. FICO does not give equal weight when calculating credit utilization for installment accounts (such as your mortgage) and revolving accounts (such as credit cards). More weight is given to the credit utilization ratio of your credit cards, so paying off your cards to a zero balance should help improve your credit score, even though you have added to the total amount owed on your mortgage.

Check your credit reports to be sure that the accounts reflect your payments, and then check your credit scores (you can pull your scores for about $20 each at Based on your credit score, you can then research what interest rate you can expect to be charged for a car loan. Be sure to keep in mind any fees that would be associated with refinancing your car loan and use a calculator to assure that you will be saving enough with a lower interest rate to warrant any fees.

Another alternative would be to pay more than the monthly amount due on your current auto loan to clear the balance quicker and save interest payments in the process. Of course, you will need to be sure that you don’t have an early pay-off penalty as part of your loan terms.

I want to congratulate you on restructuring your debt and taking control of your finances. To keep the ball rolling, be sure you have a plan in place to avoid accumulating credit card debt again.

Let’s keep talking!

See related: Subprime borrowers have easier time getting car loans

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Published: March 27, 2014

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