Credit score and available credit

June 15, 2009 8:45 AM

Is my U.S. credit score based on the total available credit on all cards, or is it also based on the available credit on an individual card?

I have a large number of credit cards without balances, and one credit card with a balance, on which I pay the introductory rate of 0%. Money in my checking account makes 4.25% interest. So my plan is to put a high balance on the interest-free credit card, leaving more money to accrue interest in my checking account. Then, when the introductory offer expires, I will get a new one (preferably fee-free), and pay off any balance that I can't transfer.

My question is, does my credit score change based on my percentage of available credit on the individual card (which would be very small), or only based on the percentage of total credit available on all the cards (which would be very large)?

So, do I have to worry about getting close to the credit limit on this individual card?

If anyone has related experience on this matter I'd be glad to hear it.

posted by East Manitoba Regional Junior Kabaddi Champion '94 to work & money (10 comments total)

It depends on both. One card with a high revolving balance is bad, but small balances on lots of cards are also bad. But they also look at your total indebtedness compared to your total available credit, and how much of that credit has been run up recently.

But before you try this, note that balance transfers always comes with a fee. This is usually a few percentage points of the total balance to be transferred and applies regardless of the applicable APR.
posted by valkyryn at 8:49 AM on June 15 [3 favorites]

valkyryn, I did a large interest-free balance transfer without a fee last year (from Elan Financial Services). But clearly those offers are pretty rare.
posted by East Manitoba Regional Junior Kabaddi Champion '94 at 8:52 AM on June 15

I also got a fee-free offer from Chase. In both cases the offers were in direct mail.
posted by East Manitoba Regional Junior Kabaddi Champion '94 at 9:19 AM on June 15

Another possible ding to your score is having cards that haven't been open very long. As valkyryn mentioned there is usually almost always a fee for transferring the balances. Carrying it for a while at 0% isn't a problem, but personally, I'd pay the balance if I could when the intro rate is up.
posted by thewalledcity at 9:26 AM on June 15

The two biggest factors in your FICO score are your payment history and your debt to credit ratio, which together account for about two thirds of your entire score. Your payment history is the most important factor, about 35% of your score. The remaining third consists of the length of your credit history, credit bureau pulls associated with applications for credit and type of credit, in roughly that order.

However, this is just your credit score, and this is not necessarily the only thing a lender will look at, nor is it even still widely perceived as a solid indicator of creditworthiness. Lenders will often have proprietary risk models that will take other factors into account or calculate a credit score from the same information differently. Better than worring about how Fair Issac is calculating your credit score is to look at your actual credit report from Equifax, Experian or TransUnion. Get your free annual credit report; the CRAs don't make it the easiest thing in the world, but the FACT Act entitles you to it.
posted by [expletive deleted] at 10:11 AM on June 15 [1 favorite]

Your credit score is based on overall utilization, as well as single card utilization. However--the effect of a utilization based score change is only applied as long as the utilization is present.. ie.. if you max out your only $1000 credit card today, your score drops (say) 50 points. you pay it off tomorrow -- your score should go back up 45-55 points (because of other factors -- as you can't simply isolate the single factor).

Save money -- your fico score doesn't pay you interest -- unless you forsee needing to take out a loan in the near future.
posted by SirStan at 10:12 AM on June 15 [1 favorite]

note that balance transfers always comes with a fee

Not true at all. They very commonly do -- and if they don't, you are usually missing the language that says otherwise -- but I have had numerous 0%-2.9% balance transfer options with no fees.
posted by SirStan at 10:14 AM on June 15

I should clarify that the credit utilization component doesn't consider installment loans like mortgages or car payments, only revolving credit.
posted by [expletive deleted] at 10:15 AM on June 15

Thanks for the information everyone. I think it's important to maintain a good credit score so I can easily get another interest-free offer if I need it. So to compromise, I think I will use only 85% of my available credit on the interest-free card.
posted by East Manitoba Regional Junior Kabaddi Champion '94 at 11:32 AM on June 15

Anything over 35% may damage your credit score, fwiw. The tradeoff for eeking out a few base points on a checking account is up to you to decide.
posted by stratastar at 12:16 PM on June 15