A few months ago I incurred a medical bill and charged it to my Master Card. I hadn't intended to leave it there very long, knowing the horrendous interest rate that I would be charged if I did so. I was just biding my time awaiting the opportunity to transfer this balance to a 0% APR deal that I knew another one of my credit cards, let's call it Credit Card X, would eventually offer as a promo which it does occasionally throughout the year. And that's just what happened. So naturally I availed of this chance and transferred the balance, approximately $2,000, from my Master Card to Credit card X which has a credit limit of $4,000 which I've never come anywhere close to approaching. My previous high balance with them was around a few hundred bucks.
Well as it turned out, by my placing the $2K on that card which was 50% of my credit line, in the eyes or the algorithm of the credit score folks or I had effectively utilized too much of my credit line. That is considered a red flag in terms of card holder risk which is a situation that I never encountered before inasmuch my credit card balances had always remained well below their respective limits. Hence, as a result of this transaction my FICO score which had been over 800 for several years dropped 38 points into the 700 range.
Now Credit Card X customer service has assured me that if I paid down the outstanding $2,000 on time, the percentage of balance to credit limit would decrease and my FICO score would correspondingly rebound accordingly. But that will likely take several months. An additional possible recourse would be to apply for a credit limit increase which if approved would also lower the balance to credit line ratio.
But when all is said and done, my main concern is this: As experienced as I am in personal finance both on a personal and a professional level (consumer finance was my line of work prior retirement) I had never heard that credit card balance transfers might negatively impact one's FICIO score.
So as inviting as a balance transfer might appear, before you take the plunge, consider the overall effect on your credit rating. And if you do take that step, make sure that the spread between the amount involved and the credit limit of the new card is wide. Don't exceed 30%.
https://bettermoneyhabits.bankofamerica.com/en/credit/understanding-your-credit-limit
Oh, and as for Credit Card X, since the amount owed was from a medical bill, it so happens that I received an unexpected insurance benefit which I then used to pay off that balance in full. But it will still likely take a while before my FICO bounces back accordingly.
