jediwho

Anyone has ever used those transfer checks from Citi, Chase, etc. for existing cards? I got one with just 1% transfer fees and 0% APR for 12 months. I am wondering what the catch here is?

My biggest concern is what if I use 90% of my credit limit and then use the remaining 10% to make purchases. Even if I pay off every month for purchases, would my monthly payments be credited towards the purchases or my low cost borrowing and charged the regular APR on the purchases?

eajusa

When I use one of those checks. I don't use the card until the 0% promotion balance is paid off.

jediwho

Thanks! That is my plan as of now. Does you credit score change meaningfully when you have these revolving credit outstanding? Simulation on CK says that my score could drop from 800+ now to less than 700 for have 20% of my total credit line outstanding.

rrgg

With most cards your payments are applied to your lowest interest rate first, which is bad. Also, one "catch" is they want you to screw up the offer and start paying a high rate on whatever balance you transferred.

jediwho

Could you explain this how one can screw up? So, if I transferred $10K at 0%, how do I start paying high rate on that amount if I don't put any spending on the card?

MDtR-Chicago

FICO score takes into account % utilization over all and also % of each credit line. Showing 90% of a credit line used can have a significant negative impact.

garykung

Several, subject to respective T&Cs:

1. Minimum interest charge. While your balance is subject to 0%, the creditor can still assess the minimum interest charge (usually less than $1/billing cycle) against your balance. (Note: Chase has done that before.)

2. Applicable rate after offer expiration. The premise of the offer is BT. If you use the checks other than BT (i.e. not paying off other balances), the creditors can assess Cash Advance APR after your offer has expired.

Credit CARD Act revised how payment is credited. In most of the case (except paying the minimum only), your payment should allocated mostly to the balances associated with the highest rate.

Not true - Credit CARD Act has banned this practice.

rrgg

What I meant by screw up is if you missed a minimum payment you'd probably pay a late fee and lose the 0% rate permanently.

Also-- garykung pointed out my other comment about how payments are applied is incorrect.

Having said all of that, I used to accept 0% offers 12 years ago when interest rates were higher and there was no fee to accept the 0%. I'd take $25k from a credit card and put it in my bank. Then I set up 11-12 bill pays to return all the money on time and passively earn interest for the year.

jediwho

So, this is 90% for just one account. So the total utilization would still be well under 20%.

MDtR-Chicago

FICO will subtract points for 90% on one line and also 20% overall. Both are considered bad.

See also: FICO Score getting killed - I am obviously doing this wrong [FICO and Utilization]

serpens

A Chase rep told me that this is not true; it's only overall utilization.

I had asked for credit lines to be re-balanced in anticipation of an upcoming large expense, and the rep said it would not make any difference because only overall credit utilization is considered.

MDtR-Chicago

I tend to trust the collective wisdom at myfico. Here is a DP thread: http://ficoforums.myfico.com/t5/Unde...d/td-p/4098766

takeshi74

90% is already considered maxed. Don't go for 100. If you're going to carry try to stay at 30 or less though you might be able to get by at higher utilization if your profile is strong enough.

Additionally, don't use a card for purchases if carrying a transferred balance on promo as you don't have a grace period while carrying a balance -- unless, that is, you also have a promo on purchases.

You can certainly follow the advice of that Chase rep but I wouldn't advise it. Individual utilization matters as well -- not just for FICO scoring but any creditor reviewing your reports. A sudden spike like that paid off over the term of promo offer could cause problems with conservative creditors and/or those with credit profiles that aren't strong enough.

Restil

I've considered using them myself for short term low interest loans, so I've considered the catches. Here's what I've discovered.

Because the 1% transfer fee is up front, as opposed to no fee but a 1% APR, you pay that amount on the entire balance that you transfer, no matter how long you take to pay it off. If you make equal payments over the 12 month period to pay it off the last month, you're effectively paying an interest rate of almost 2%, and it's higher if you pay it off sooner. Not a big deal there.

The next potential catch is how they apply payments to the card. The typical credit card terms indicate that incoming payments are always applied to the oldest balance first. If you do the balance transfer, then make any additional charges on the card, it's conceivable that all payments will be applied to the transfer balance, meaning you'll be charged interest on the standard APR % on all purchases until you've paid off the transfer balance. This might be incorrect, and might also vary by bank, but it's something to consider.

Also, carrying a larger balance on the card will impact your credit score until you've paid it down. Again, not a big deal, it's temporary, and some of the reporting agencies look at your entire credit line over all of your loans, not individual ones, but that's not necessarily universal.

One other minor point, don't use the transfer check to pay for services directly. Charge it on another card first if you can, and use the transfer check to pay off that card. That way, you're also earning miles/points/cashback for the initial purchase, which you won't for the transfer itself.

And all bets are off if you don't get it paid off by the end of the promotional period. Depending on the terms, you might be charged interest on the remaining balance, or you might be charged interest on the entire original balance retroactively over the entire promotional period. Read the fine print carefully.

mia

Discussion here:

http://www.flyertalk.com/forum/credi...e-loanish.html

http://www.flyertalk.com/forum/credi...o-balance.html