The Veridian Blog

Hi all -

Transferring balances to low or zero percent credit cards may seem like a smart decision on paper.  After all, you save on monthy interest payments and improve your borrowing power if applying for a loan.  This is especially true if you move auto debt to avoid the typical large auto payments that frequently hinder applicants from borrowing what they want. 

Now, for the dangerous part. If income qualification is not an issue, then its best to hold off on such a maneuver because of the potential impact it can have on your credit.  One, anytime you add new credit, it will lower your FICO score – especially if the new credit account is recent or new. Two, anytime you have a revolving account (credit card) balance that exceeds 50% of the credit limit, your FICO score will begin to suffer.  Anytime a revolving account is maxed out, it can result in severe drops in FICO score, again, especially if the account has been maxed out recently.  A common pitfall for borrowers is with retail accounts that have credit limits within easy reach of a single day's shopping spree.  Even those smaller limit/balance accounts can damage a FICO score during a time that is most inconvenient.

So although you may be saving money in the short term, be careful with these credit accounts during a time you anticipate applying for a loan. In the long run, it could definitely hurt your pocketbook more than you think.