CC debt -- what effect on FICO score? - Posted by Jamie

Posted by TAT on October 21, 2003 at 13:25:02:

What is broker funding solutions?

CC debt – what effect on FICO score? - Posted by Jamie

Posted by Jamie on October 20, 2003 at 14:36:12:

I recently received a credit card from Chase that has a $30K limit and a 0% for life rate, as long as I pay on time, no bad checks, etc…

I have a great credit score now (729), and what I’m considering is using the card to pay off a mortgage on one of my rentals ($29K).

The current mortgage is with a bank I no longer wish to do business with and it has 27 yrs remaining. The PI is $234.

The initial payment on my CC will be 2%, or $580. If I pay $580/mo for 50 months, my house is paid for, and I’m only out a total of $29K, versus $84K if I pay over 30 years.

My concern: How much does this new $29K CC balance affect my FICO score? A few years ago, I had CC balances of $10-14K for 9 months or so, and didn’t see any real damage (I’ve always been on time, and I’ve had scores over 700 since the FICO craze started a few years ago).

thanks for your help in advance,

–Jamie

Re: CC debt – what effect on FICO score? - Posted by Courtney Kostelecky

Posted by Courtney Kostelecky on October 21, 2003 at 15:40:42:

The effect on a FICO score would definitely have a negative impact. While I do not agrree with the current practices in some states, your FICO score determines rates for insurance
(home and automobile) I am a believer in paying off your mortgage, and being debt-free, but suggest a systematic way to do it. If you would like more information, I will send you an e-book on your FICO Score. As for the 0% interest rates, you have to look at the big picture. WHY would a credit card give anyone a 0% interest rate. They are making money somehow, and that is what I uncovered when I wrote my book Credit Card Secrets the Banks DO NOT want you to know.

Courtney Kostelecky
http://www.DebtFreeNews.com
"The FREE Newsletter that can save you THOUSANDS!"

The Big Picture---->DON’T DO IT! - Posted by John Smith, IV

Posted by John Smith, IV on October 21, 2003 at 13:47:03:

Why would you want to do that?

1- Your tenant is paying your mortgage.

2- You have a positive cash flow (most likely)

3- If you pay off your mortgage you are using $29,000 of today’s money out of YOUR pocket, instead of money over time out of your tenants pocket. (time value of money)

What is better, to buy RE with 100% of your money? say one property, or buy 10 properties with 10% of your money into each one?

Use the 29K you were going to use to pay the mortgage for one of 2 things.

Either buy more properties with it, or pay the mortgage of the house where you live in. This way you are making on your money the same % you were paying it (since the same amount of money in a bank CD won’t make you much.)

WARNING! what if something happens and you end up paying 18-24% on your CC? Plus your FICO Score goes DOWN?

Look at the big picture and don’t do it!

Re: CC debt – what effect on FICO score? - Posted by Jack

Posted by Jack on October 21, 2003 at 09:57:47:

The most accurate answer you are going to get is, ‘no one really knows’. One can reasonally conclude that your FICO will drop because of the credit card debt, but no one can say how much. My best guess would be that you score would drop 35 points. When I had $55,000 in credit card debt my FICO score was 670 (vs. 725 w/$10K). I must say that I found some of the answers you got to be quite entertaining.

Re: CC debt – what effect on FICO score? - Posted by JohnBoy

Posted by JohnBoy on October 21, 2003 at 02:13:08:

If you were to pay an extra $350 month on your current mortgage (total of $584 per month) your loan would be paid off in about 60 months instead of 27 years.

Here’s the details - Posted by Hank FL

Posted by Hank FL on October 20, 2003 at 18:05:49:

Or at least some:

http://www.creditinfocenter.com/creditreports/scoring/scoringinfluences.shtml

Very interesting.

Re: CC debt – what effect on FICO score? - Posted by E.Eka

Posted by E.Eka on October 20, 2003 at 16:27:49:

Regardless of what the rate is, using your credit card for anything is the WORSE business decision you could make. With the o% interest, your tenants are paying your mortgage, so it’s not your money. The smartest and wealthiest real estate investors in this country have ALWAYS used other people’s money to buy real estate and rarely any of their own. Follow the same principal.
Besides, maxing a credit is crazy and WILL drop your score.

Re: CC debt – what effect on FICO score? - Posted by dimpil

Posted by dimpil on October 20, 2003 at 16:01:19:

Your score just may go down with the utlization of 99% of your avaialbe credit line on one card.

Get a regular mortgage. I would suggest using Broker Funding Solutions. GREAT investor loans and rates for your score.

Re: CC debt – what effect on FICO score? - Posted by Adam (NY)

Posted by Adam (NY) on October 20, 2003 at 15:52:40:

Nate was right on.

The biggest effect on your score will be your high utilization on your credit reports. The ideal utilization is no more than 27%. Now if you have other CC with high credit limits with no balances, it will help reduce your utilization.

On the flip side, I would rcomend you DO NOT put your mortgage on your CC. The reason being that CC’s have ways of “jacking” rates on consumers. If you read the fine print they can change the rate whenever the fell like it. Most CC companys will monitor your credit reports and note changes in it. If they see a high balance on one CC they can and have raised interest rates on their CC’s.

Its just not worth it. You will be taking a huge risk if you put your mortgage on you CC.

If I can be of anymore help, please feel fre to email me.

Adam

Don?t Do It?. - Posted by Randy (SD)

Posted by Randy (SD) on October 20, 2003 at 15:44:55:

This move would have a very dramatic effect on your credit score! First you substituting a mortgage loan (very stable secured loan with matching asset) for a very unstable consumer debit. Secondly the 99% max out on the NEW CC would drop your scores to 600 range or lower? In addition if the CC payment is late or something beyond your control payment lost in the mail, check bounces due to bank error or anything ? your interest rate could go to 22% you could be divested credit wise.

There is no reason not to refi the property or make higher payments of $580 to the current mortgage, any over payment is applied directly to principal in most cases (check with your lender).

Re: CC debt – what effect on FICO score? - Posted by Nate(DC)

Posted by Nate(DC) on October 20, 2003 at 15:32:29:

My understanding is that the main issue is the percentage of your outstanding credit that you’re using. So if you have a $29K balance on a $30K limit that would most likely be a negative on the score. I have been told the ideal amount of balance is around 30% of your limit. Any more, and you look overextended. Any less, and you look like you pay off your card every month (which is also a negative to a card company that wants to earn interest).

This is all second hand info, not guaranteed in any way to be correct, so take it for that…

NT

additionally - Posted by Jack

Posted by Jack on October 21, 2003 at 10:02:35:

The 0% rate may not apply to cash advances, and there may be a significant cash advance fee. And, I personally find it hard to believe that a CC company would offer a 0% for life interest rate. Though CC companies are famous for bad business decisons, they most likely plan to unilaterially modify the contract terms after a year.