Digging out of debt and Questions re: Balance Transfers

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abovethesink
 
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Digging out of debt and Questions re: Balance Transfers

Postby abovethesink » Thu Feb 13, 2014 1:47 pm

Due to letting student loans become delinquent (and in one case default), my credit score is poor. All the issues have been rectified and I am digging out and in 14 months my score has gone from the 490s to the 630s, but I still have work to do clearly. My defaulted loan should come out of rehabilitation and go back to its lender in either April or May so that will help a lot too. The car payment, which has been perfect, is in my name, as are the three credit cards which are as follows:

1. Best Buy - $1,200 limit

Got this when I was young and stupid. Initially maxed it out, dug out, and since have used it to make our very few big electronics purchases to count positively towards my credit by taking advantage of their 0 interest for X amount of months offers that come with their bigger ticket items. It doesn't have a balance currently and never carries one that causes interest.

2. Discover - $3,500 limit, $2700 balance

Did great with this one for the longest time until we across the state and things didn't break as expected. Ended up needing to use it as my income for a while and max'd it out. I have been paying $126 a month for a few months now but that doesn't get me too far ahead. $2,700 sits on it and I am not using it until it returns to 0 balance.

3. Capitol One Mastercard - $1,000 limit, $19 annual fee

Got this offer in the mail six months ago and took it as we needed a day to day card to build credit with as it will take a while for my Discover card to recover. We filter everything we can through this and pay everything off immediately. It has never carried a balance and it never will.

We don't know my wife's score, but it couldn't possibly be anything bad because all she should have on her record would be almost three years of perfect student loan payments. She wanted to be able to see hers so I had her apply for a Discover IT card. I know nothing about credit cards and of course waited to read all the benefits after the fact, but thankfully there doesn't seem to be anything but great stuff for us there. She was accepted with a $5,500 credit line and we are awaiting for it to arrive.

This is good news except that in this process I learned about balance transfers. I can't do a Discover to Discover transfer, but if I was able to transfer my Discover balance to a card with the exact same benefits and fees (0% interest on transfers for 14 months, 3% transfer fee) by my math I would save five months of payments which is, at the rate I have been paying, $630. Damn.

With my loans sorted out and left to time, the last step I need to take here is to sort out my credit situation. I apologize for the lengthy back story, here are my questions:

1. What should I do about that Best Buy card? If it is neutral to my credit score, I'd just prefer to leave it open. But is it hurting me in anyway for it to sit there with a 0 balance? I can't figure how it would, but I don't know what I am talking about.

2. What card should we use to filter everything through and build positive credit history with? Should we stick with my Mastercard to continue helping with my credit or should we switch over to her Discover IT card to take advantage of the cash back bonuses?

3. Should she turn around and immediately apply for another card with a similar balance transfer offer in order for us to stop paying interest on my Discover debt? Or should she not apply again so soon? I am both assuming here that there is nothing I can get with my credit to do the same thing and that my debt can be transferred to my wife. If either of those assumptions are wrong then let me know.

4. Absolutely anything else. Educate me. What should I be doing here?


samhradh
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Postby samhradh » Thu Feb 13, 2014 8:00 pm

abovethesink wrote:1. What should I do about that Best Buy card? If it is neutral to my credit score, I'd just prefer to leave it open. But is it hurting me in anyway for it to sit there with a 0 balance? I can't figure how it would, but I don't know what I am talking about.


Keep it open. Leaving it open increases your AAoA and decreases your utilization. There's no annual fee so you're fine to just let it sit. Put a small charge on it at least once a year to keep it active.
abovethesink wrote:2. What card should we use to filter everything through and build positive credit history with? Should we stick with my Mastercard to continue helping with my credit or should we switch over to her Discover IT card to take advantage of the cash back bonuses?

What MC is it? You do not say. Without knowing what you have I do not know which rewards program is best.
abovethesink wrote:3. Should she turn around and immediately apply for another card with a similar balance transfer offer in order for us to stop paying interest on my Discover debt? Or should she not apply again so soon? I am both assuming here that there is nothing I can get with my credit to do the same thing and that my debt can be transferred to my wife. If either of those assumptions are wrong then let me know.

You can apply for a balance transfer card but your likelihood of approval is lower than your wife. She can apply but her credit score will drop a few points for the inquiry. I recommend you have her apply but I'm not sure if you can transfer balances under one person's name to another.
abovethesink wrote:4. Absolutely anything else. Educate me. What should I be doing here?

90% of the questions you asked could have been answered by reading forum posts. We answer the same questions again and again and reading old posts can be very helpful.
Citi Forward ($10.1K), AmEx Blue Cash Everyday ($30K), Chase Freedom ($12.4K), Discover it ($5.5K), Barclaycard Arrival ($12.5K), L.L. Bean Visa ($5K). FICO 806 (TU), 812 (EQ), 806 (EX).

takeshi
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Postby takeshi » Fri Feb 14, 2014 9:19 am

samhradh wrote:Leaving it open increases your AAoA and decreases your utilization.

AAoA would still increase even with closing it until the fall-off point (10 years). However, closing it would increase utilization. For that reason I'd recommend keeping it open until utilization is improved on the OP's other card.

abovethesink wrote:What card should we use to filter everything through and build positive credit history with?

From a utilization standpoint it would be a bit easier to use her card as you'd have to pay prior to statement close on your card to keep reported utilization down. Rewards would obviously be better by placing spend that generates higher rewards on the Discover card. Still, should is really for you to determine based on all your priorities, preferences and goals.

abovethesink wrote:Or should she not apply again so soon?

It's not really about time so much as it is about one's credit. A strong credit profile can handle multiple new accounts within a short timeframe. Without the details on her credit it's impossible to say. Her Discover credit line seems like a good sign but I wouldn't rely solely on that.

abovethesink wrote:Absolutely anything else. Educate me. What should I be doing here?

Take some initiative and read up on the basics of credit scoring. With that info you'd have the answers to your questions. Read up on credit related forums but keep the standard caveats in mind. I wouldn't even suggest taking my own posts at face value. Do your own due diligence, validate & corroborate, etc.

MrMosby
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Postby MrMosby » Fri Feb 14, 2014 2:41 pm

The only one's I would typically close are
[*] Store cards you don't plan to use. Closed at Consumer request is much better on your report than Closed by Lender.
[*] If you have multiple cards at the same bank, and some aren't being used. You often can consolidate credit limits to keep your utilization low and eliminate an account.
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