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Rolling Credit Into Refi--Bad For Credit?

Rolling Credit Into Refi--Bad For Credit?

Old Sep 23, 2014, 10:56 am
  #1  
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Join Date: Jan 2013
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Rolling Credit Into Refi--Bad For Credit?

MORE CONCISE QUESTION:

Does anyone have experience doing a cash out refinance, with a credit card balance rolled into the loan, and know how it has shown up on your credit report? Did it show up in a negative way to the credit card companies when they view your credit history before issuing new credit cards?

LONGER VERSION OF QUESTION:

Hi,

If I roll $20K from a credit card into a cash out refinance loan, will that negatively affect my credit? Will credit card companies see that on my report and no longer easily approve me for new credit cards?

We're in the middle of refinancing our home mortgage. Our debt/income ratio isn't great, but our credit is fantastic and we don't actually carry a lot of debt. We have the original mortgage at about $130K still owed, and one 0% credit card at about $20K (this was actually part of fixing up our home, but the path to getting that debt onto that card is too complex to fully show/explain it away).

The bank says they'd give us more $$ for the cash out refi if we roll that $20K credit debt into the loan. We want the cash out to finish fixing up our home. However, even though our home is really important...earning miles for travel is equally important to me. If credit card companies are going to view rolling that debt into the loan as a negative thing, I'd rather not go that route at all.

Anyone know how that's viewed by the credit card companies? I'm assuming it would show on the credit report as the balance transferred to a loan and the card closed.

Thanks!!

Last edited by gypsyardor; Sep 23, 2014 at 9:09 pm Reason: Being more concise with my question
gypsyardor is offline  
Old Sep 23, 2014, 2:41 pm
  #2  
 
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Rolling Credit Into Refi--Bad For Credit?

What makes you think they would even be aware you did that?
plenow is offline  
Old Sep 23, 2014, 3:34 pm
  #3  
 
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I live in Texas, and the last time I refinanced, my mortgage broker said that if I took out money on the refinance it would affect protections I had for my homestead under the law.

Now, I am not an attorney, or an expert on this. And laws probably vary from state to state. But this is something to be aware of. If a person files bankruptcy, often state laws will protect their home from repossession. I don't know if your state does that.

But I was told that I would lose that protection in Texas if I took out additional funds when I refinanced. I have a cousin who was in a wreck, and had to file for personal bankruptcy due to medical expenses. It is rare, but it happens. He prioritized his mortgage over his credit card bills, and the credit card companies weren't able to go after his house.

This was a controversial provision when Texas changed the law a few years back.

The point here is that rolling the 20k of credit card debit into your mortgage could affect you in other ways. It couldn't hurt to research that.
jeanie is offline  
Old Sep 23, 2014, 5:06 pm
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Your credit scores should improve because your utilization would decrease after paying of your card(s). However, even if the interest rate is lower on your mortgage you will be paying interest on that 20k over 15-30 years. You might consider paying off those cards ASAP outside the refi for this reason.

Hopefully you are not contemplating bankruptcy. But if you do declare bankruptcy and do not reaffirm and agree to repay your mortgage in full the bank will foreclose in all 50 states. The homestead statues referred to by jeanie protect debtors against judgments by unsecured creditors such as credit card companies. Because the money you borrow to purchase or refinance your home is secured by the home itself the homestead statute will not protect you. If that were the case no one would ever pay their mortgage.
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Old Sep 23, 2014, 5:52 pm
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If you're $20K in CC debt you need to get it paid off. You also need to look at how you got there. A 2nd mortagae will clear it up and also be tax deductible, but how long will you be paying it back. Yes it should help your credit score. Sorry no easy answers but 20K on CC's is not good.
jjmiller69 is offline  
Old Sep 23, 2014, 6:07 pm
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I'm definitely *not* ever planning on bankruptcy.

We're thinking of refinancing because the rates are a lot lower than our existing mortgage. Our home is worth a lot compared to when we bought it, also. So, we thought we'd do a cash out refinance and use the funds to do the remaining remodeling and landscaping.

We are very conscious of how we spend money/use credit. That's why I'm trying to think ahead and learn all I can before I proceed with anything.

I'm concerned that rolling the $20K credit that's currently at 0% (yes, I know it will cost us more in the long run for this part, but we're going to pay down the loan faster than normal, anyway) will show up on the credit card as:

* Balance transferred to loan (may be seen poorly by credit card companies)
* Credit card closed by loan company (not sure if it will show closed by us or the bank we get the refinance loan through).

I'm just asking here...if anyone has experience with the same thing and knows if a cash out refinance, with a credit card balance rolled into the loan, has shown up in a negative way to the credit card companies when they view your credit history before issuing new credit cards?

Thanks!
gypsyardor is offline  
Old Sep 23, 2014, 6:13 pm
  #7  
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the $20K on that one 0% card was there from a line of credit we had used to fix up part of our home. It's not irresponsible spending or credit use. We moved it to the 0% card to save on the 6% from the home equity line of credit. We have no other debt other than the original mortgage (only $130K now) and that $20K on the 0% card that was used only for fixing up the awesome home we bought for a great price. :-)

No worries...not accruing debt or spending unwisely. That's why I'm researching here...trying to figure out if this is a good move, or not, for our needs (planning another $80K in remodeling and landscaping to finish off the property and make it a real gem).

Just making sure if we fold that $20K into the cash out refi loan that it doesn't hinder our credit card approval...because earning miles/points is as important to me as this home. We've traveled all over the USA and have gone to India and Thailand so far on our miles in just a few years. We're headed to India again the end of this year and have saved enough miles for a trip for 4 to trek across Spain the following year. :-)

Just hoping someone here has had experience with this and knows how it will be showing up on credit reports and whether it negatively affects how credit card companies see you.

Thanks!
gypsyardor is offline  
Old Sep 23, 2014, 8:44 pm
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Homestead protections generally do not apply to voluntary liens on your homestead, which what mortgages are.
gustav316 is offline  
Old Sep 24, 2014, 9:17 am
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Originally Posted by gypsyardor
I'm definitely *not* ever planning on bankruptcy.
I'm just asking here...if anyone has experience with the same thing and knows if a cash out refinance, with a credit card balance rolled into the loan, has shown up in a negative way to the credit card companies when they view your credit history before issuing new credit cards?

Thanks!
With a cash out refinance, the bank will typically give you a check at closing. You can then use that money to do whatever you want. After you pay off your credit card you can close it by customer.

If your bank insists on paying off the CC directly because you would not otherwise qualify for your new loan you can close your CC now with a balance left on it. Then when you refinance the bank can pay that off and your report would still indicate closed by consumer.
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Old Sep 24, 2014, 9:34 am
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fyi...You say you have $20k at 0 percent on a credit card. Do you really? The reason I ask is since the recession I have not seen a true 0 percent card transfer or check promotion. I read almost all of them and the fine print has an origination fee of 3-5 percent of transfer.
Centurion is offline  
Old Sep 24, 2014, 9:36 am
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Originally Posted by monkeywrencher
With a cash out refinance, the bank will typically give you a check at closing. You can then use that money to do whatever you want. After you pay off your credit card you can close it by customer.

If your bank insists on paying off the CC directly because you would not otherwise qualify for your new loan you can close your CC now with a balance left on it. Then when you refinance the bank can pay that off and your report would still indicate closed by consumer.
Thanks, Monkeywrencher!

We heard again from the bank last night and they're now offering enough for us to finish our remodel/landscaping without closing that CC. Good to know there was a way to do it, though, without it negatively affecting our credit standing with the credit card companies.

I love this forum and all the great information everyone shares! I'm sure this thread will one day to be helpful for someone else asking the same questions.

Now to sign the final papers and get back to earning miles! I know I need to wait until closing, though, because sometimes they'll pull the credit report again before the closing date.

Thanks, everyone!!
gypsyardor is offline  
Old Sep 24, 2014, 9:38 am
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Originally Posted by Centurion
fyi...You say you have $20k at 0 percent on a credit card. Do you really? The reason I ask is since the recession I have not seen a true 0 percent card transfer or check promotion. I read almost all of them and the fine print has an origination fee of 3-5 percent of transfer.
CHASE has one card with 0 transfer fee. PLUS, if you are clever enough you can find ways to transfer money around and get it onto a 0% card without that transfer fee. We were using AP to do it, before that beautiful portal closed.
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Old Sep 24, 2014, 9:52 am
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thanks..I had fun with those zero percent checks and balance transfers in the old days. They truly were zero percent and some even offered miles. I thought they were extinct.
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Old Sep 24, 2014, 2:12 pm
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Just a point for you. I refinanced 11/2012 and went from a 80K loan to a 100K. I too used the money for remodeling. Hardwood floors, Bathrooms X2 and Granite counter tops.
Last month when I checked my Fico it was 837. When I refinanced it was 809 so after almost 2 years mine went up. So I would think you should have the same results. Good luck you're using it for all the right reasons.
And yes it is common for them to pull the credit report the day of closing mine did.
jjmiller69 is offline  
Old Sep 25, 2014, 12:08 pm
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Originally Posted by jjmiller69
Just a point for you. I refinanced 11/2012 and went from a 80K loan to a 100K. I too used the money for remodeling. Hardwood floors, Bathrooms X2 and Granite counter tops.
Last month when I checked my Fico it was 837. When I refinanced it was 809 so after almost 2 years mine went up. So I would think you should have the same results. Good luck you're using it for all the right reasons.
And yes it is common for them to pull the credit report the day of closing mine did.
Great! Did you happen to roll any cc debt into the refinance and close the card, also? I'm still curious if it would have looked like a negative thing to credit card companies had we done that.

I'm still amazed at how playing the miles game has made our credit score climb and climb. That's sweet that yours climbed to 837 after the refi! I check our scores regularly through CreditKarma, to learn what causes things to change. I was surprised that when we used a cc we had kept a zero balance on for a long time that it triggered an *increase* in our score...apparently showing action on a card is sometimes viewed as a very positive thing. We paid it back down to zero the following month and the increase in the score stayed.

Anyway, congrats on the climb in your score and on getting some great things done to your home. We're excited to finish ours off after moving slowly on it over the past four years.
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