Why the credit hit...?

March 28, 2019 7:09 PM

I just paid off a credit card. Then I used a bank Supercheck (2.9% APR for 18 months), to pay off most of another. I figured I'd continue to make the same monthly payments but, with the temporary interest rate, I'd be paying principal instead of interest. Sounds sensible, I thought. I just learned that my credit scores from two agencies went up 21% and 34% because of the hit from the Supercheck. Doesn't the fact that I used that Supercheck to pay off most of another card figure in the calculations? Thanks for any insight anyone might have.
posted by holdenjordahl to Work & Money (10 answers total)

Best answer: You added another open credit account (and probably took a hit for the hard credit check your bank did before giving you the loan), both of which will push your scores down. You have improved your credit usage ratio (the amount of available credit versus how much you have used) in total and with the partially paid off card, but the transfer hasn’t reduced the total amount owed.

The good news is that now you can rapidly pay off the second credit card and turn to the bank loan after that. You’ll start seeing the effect of your improving situation in the next couple of months.

(Also, I think you mean your credit scores declined by those percentages; higher credit scores are better.)
posted by notyou at 7:38 PM on March 28, 2019 [7 favorites]

Best answer: You took out another form of credit (the Supercheck, which sounds like a low-interest loan or a form of revolving credit; i'm not familiar with it) to pay off other forms of credit. Opening a new line of credit or a new loan automatically results in an immediate decline in your credit score.

Hopefully you left those paid-off credit cards open, even though they're paid off and you're not using them. The length of time you've had a line of credit available is hugely beneficial to your credit score.

If you left them open but paid off, and all you have left is the Supercheck loan to pay off, and you're paying off the Supercheck loan faster than you're accruing interest on it, then your credit score will start improving in a few months.
posted by erst at 8:27 PM on March 28, 2019

Best answer: Wait, your scores went up? Meaning it got better?
posted by gideonfrog at 4:07 AM on March 29, 2019 [1 favorite]

Best answer: If your overall credit increased but your utilization stayed the same (e.g you went from $6K of debt on $10K of total credit limit across cards/loans to $6k of debt across $16K total credit limit) that would decrease your credit utilization rate from, in this case, 60% to 38%. Credit utilization makes up a big chunk of credit score. Perhaps that’s what happened here — you actually experienced a credit score improvement (as per erst’s final paragraph)?
posted by elephantsvanish at 5:50 AM on March 29, 2019 [2 favorites]

Best answer: (I believe "supercheck" is a term for one of those checks credit card companies send with balance transfer offers.)
posted by hoyland at 6:30 AM on March 29, 2019

Best answer: Sorry folks, I meant the scores went UP 21 and 34 POINTS, respectively.
All this is great information. Thanks - I appreciate it!
posted by holdenjordahl at 7:28 AM on March 29, 2019 [2 favorites]

Best answer: Wait but higher scores are better, so going up that # of points is actually a good thing! Like you're saying you went from (for ex) 600 to 621 at one agency, and 600 to 634 at the other, right?
posted by alleycat01 at 9:54 AM on March 29, 2019 [1 favorite]

Best answer: It sounds like your credit utilization improved and I believe there's a bump when you pay a balance off in full.

I've had to do some balance transfers the past few years and once I started consolidating and paying down my debts (like you're doing), my credit score went from ok to good.
posted by lafemma at 12:15 PM on March 29, 2019

Best answer: Yes, if your scores went up, that's a *good* thing, and it sounds like you're on the right path towards an even better (increasing) score.
posted by Aleyn at 2:18 PM on March 29, 2019

Response by poster: Sorry for the late response.
What I meant to say is that the scores went DOWN as a result of the Supercheck advance.
In the meantime, my Equifax score just went UP, to reflect the near payoff of one of the cards.
I apologize for the confusion...
In conclusion, high scores GOOD, low scores BAD. Plus, there's a lag in reporting the reduction of old debt and the assumption of new debt.
posted by holdenjordahl at 3:09 PM on April 1, 2019