Q: I just transferred the balance of my car loan to a new zero-percent interest credit card which is now completely maxed out – this should help improve my borrowing power because I made a savvy financial maneuver and I’m now saving money, right?

A: You are correct in that your credit card payment will likely be much lower than your auto loan.  Even though a mandatory 5% credit card payment will be factored into the debt-to-income ratio, the new payment will still be lower than the car loan payment – which is typically at least several hundred dollars.  All things being equal, your borrowing power can easily increase by 30, 40 or 50 thousand. 

 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 credit.  One, anytime you add new credit, it will lower a FICO score – especially if the new credit account is recent or new, as in your case.  Two, anytime you have a revolving account (credit card) balance that exceeds 30-40% of the credit limit, the 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 day’s worth of shopping.  Even those smaller limit/balance accounts can damage a FICO score during a time that is most inconvenient.