Questions about credit score

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consultantjournal
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Questions about credit score

Postby consultantjournal » Mon Jun 18, 2007 3:10 pm

I have a couple of questions about credit and its effect on your credit score.

1. Does using a loan to pay off other debts do anything good/bad to your rating?
Many years ago, I encouraged a boyfriend to take out a $5,000 bank loan to pay off his credit cards. The interest rate on the loan was much lower than on the credit cards and he wouldn't be paying interest on the original credit card charge (e.g. $10k) anymore.

2. My bank has offered me a short-term low interest rate on balance transfers and purchases for my line of credit. Good or bad thing?
I don't have any balance transfers. However, I do have some savings set aside for renovations. The interest rate I'm getting on my savings account is higher than on the line of credit. Since I have the money set aside anyway, does it make sense to use the bank's low interest period and pay it off at the end? Is this good or bad for my credit score?
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pf101
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Re: Questions about credit score

Postby pf101 » Mon Jun 18, 2007 3:25 pm

consultantjournal wrote:I have a couple of questions about credit and its effect on your credit score.

1. Does using a loan to pay off other debts do anything good/bad to your rating?
Many years ago, I encouraged a boyfriend to take out a $5,000 bank loan to pay off his credit cards. The interest rate on the loan was much lower than on the credit cards and he wouldn't be paying interest on the original credit card charge (e.g. $10k) anymore.

2. My bank has offered me a short-term low interest rate on balance transfers and purchases for my line of credit. Good or bad thing?
I don't have any balance transfers. However, I do have some savings set aside for renovations. The interest rate I'm getting on my savings account is higher than on the line of credit. Since I have the money set aside anyway, does it make sense to use the bank's low interest period and pay it off at the end? Is this good or bad for my credit score?


The biggest thing to remember about credit scores is that they really only matter when you're applying for a loan. This means that if you're in debt payoff mode it makes sense to get the lowest rate loan that you can to pay off your debt, even if it means opening a new account. The biggest thing that can hurt you though is closing old accounts which is a mistake that a lot of people make.

For your second question, if you already have the money to pay it, I don't see the reason for using the LOC unless you then plan to use that money for a different purpose which will get you a higher return than the loan savings account. OR, if that card is a rewards card and you can use this to get rewards and then pay it off. It won't do much for your score (maybe hurt it a bit in the short-term, help it a bit in the long) particularly since if you're getting that good of a rate your score is probably already good.

consultantjournal
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Postby consultantjournal » Mon Jun 18, 2007 3:37 pm

Thanks. That makes sense.

I usually use my husband's rewards card and pay the balance off in full each month. I was just wondering if there was any value to using the LOC (with the great short-term rate) to buy some stuff for which I already have the cash anyway -- the rate on my savings account vs the LOC would net out to zero or a small gain on using the LOC. Since I usually use our joint LOC or my husband's CC, I just wondered if there was any point to using my personal LOC, in terms of credit score. The only loan I anticipate needing in the next few years would be for a (joint) mortgage when we go to upsize our home. (We already have a mortgage.)
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Postby pf101 » Mon Jun 18, 2007 3:45 pm

consultantjournal wrote:Thanks. That makes sense.

I usually use my husband's rewards card and pay the balance off in full each month. I was just wondering if there was any value to using the LOC (with the great short-term rate) to buy some stuff for which I already have the cash anyway -- the rate on my savings account vs the LOC would net out to zero or a small gain on using the LOC. Since I usually use our joint LOC or my husband's CC, I just wondered if there was any point to using my personal LOC, in terms of credit score. The only loan I anticipate needing in the next few years would be for a (joint) mortgage when we go to upsize our home. (We already have a mortgage.)


not really.


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