Balance transfer plus new debt will lower your credit score

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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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.

What I like about your balance transfer plan is that it relies entirely on your existing cards, with no new account openings.

  • The upside of using only the cards you already have is that you avoid hurting your score within a couple of the top five scoring categories – length of credit history and new accounts.
  • The downside is that, as you know, you’re likely to be looking at higher credit utilization (card balances/credit limits percentage) as those new charges amounting to $10,000 will cut into your existing available credit.

For an idea of the impact this balance transfer, coupled with an additional $10,000 in card charges, will have, I turned to one of the most trustworthy credit scoring studies ever done: myFICO’s “Credit missteps – how their effect on FICO scores vary.”

Here, the FICO scientists, the only people who can actually calculate how much your score might go up or down and who are responsible for the credit score most often used by lenders, created some realistic scoring simulations that predict the number of points lost from a missed payment, a maxed-out card, filing for bankruptcy, or any other ding to your credit report.

To give our best shot at estimating the credit-scoring effect of your proposed plans, we’ll start by using the information you provided – card balances and current scores.

Then, since we don’t know your cards’ credit limits – a necessary ingredient in utilization calculations – we’ll use the “Credit missteps” study to roughly estimate both your utilization percentage and the resulting score drop.

Step 1: Estimating credit limits and current utilization
According to the FICO simulation, a score of 780 (yours are close, at 765, 797 and 755 respectively) is likely to be based on credit utilization ranging from 15 to 25 percent.

Applying this percentage then to your current balances totaling $20,000, your total credit limits are likely to be in the $80,000 to $133,000 range ($20,000/.15; $20,000/.25).


Video: What is your credit utilization ratio?

Step 2: Utilization increase from a balance increase
The balance transfers themselves are not likely to impact your score in a big way, since simply moving debt from one existing card to another doesn’t mean there’s been a change in your overall credit usage.

The major score drop you’re likely to see will result from adding $10,000 of new debt to that balance of $20,000 – a 50 percent increase.

Using what we’ve been able to gather, this balance hike could send your utilization rising from that 15 to 25 percent range to one of 23 to 38 percent. Still not bad, especially on the lower end of the range, but not great.

Step 3: Predicting the score loss
While the FICO study doesn’t provide an exact example of this degree of higher utilization to draw on, it does provide us with a similar scoring scenario – a newly maxed-out card – that results in a 780 score falling by 25 to 45 points. This, then, is the answer to your question.

Results and next steps
Taking all of these factors into consideration, expect to see your scores somewhere in the low-to-mid 700s once the balance transfers have been completed and the new charges posted to your card statement.

  • The good news is that, despite the damage, these are scores that should win credit approval for an apartment or house rental.
  • Then, going forward, continue to pay on time each month, avoid adding to those balances and continue resisting the temptation to open any new accounts.

Your positive past payment record, combined with future declining balances and an ever-increasing length of credit history, could soon cause your scores to return to their current heights and ultimately higher. 

Best of luck as you move across the country to pursue your doctoral degree!

See related: How does a balance transfer affect your credit score?, Credit score impact of multiple balance transfers

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Updated: 01-21-2018