Question
I had 2 credit cards open with a balance of $7000 between the 2. I just opened a Capital One account because of the balance transfer offer. Yesterday, I was reading in a magazine and it mentioned something about Cap One and credit score lowering? I have a very good score and do not want to lower it other than the recent credit check.
Does anyone know what this magazine is referring to?
If there is truth to this, would I be better off then cancelling my card and transfering balances back to old card that is still open? How do you go about this in the best way in order to keep score up?
Thanks for any info!
Answer
...magazine and it mentioned something about Cap One and credit score lowering?
Welcome to Flyertalk. I don't believe there is sufficient detail in this statement for anyone to tell you if it is true or not. Surely the article explained why a Capital One account might lower your score?
It has been mentioned that Capital One does not report the cardholder's credit limit to credit bureaus. Instead it reports the Highest Balance on the account, and also the Current Balance. When you transfer a balance the Current Balance will be the same as the Highest Balance. This can make it appear that your Credit Utilization is high, and can lower your score. Is this what the article discussed?
Answer
MIA is correct.
You should keep your balances as low as possible on credit cards to maximize your score. Some say that you should keep the balance under 30% of the limit. This is hard with CapitalOne because they do not report your limit. They only report your balance. Your highest balance is used as your assumed limit for credit scoring.
If you want some additional insight, go to www.fico.com and consider purchasing the suzie orman kit. It has a fico score simulator based upon your credit reports. I think that opening a new credit card is a simulation scenario.
Answer
Sounds like a relative non-issue. If knowing and monitoring your credit is of great importance, you might check out www.myfico.com.
Answer
It really wasn't an article, it was someone writing in to the editor, but I think it was implying what you have just explained.
So as an example... Cap one is not reporting to the bureau that I have a $14,000 limit, it just will tell them $7000 is on account?
They would have no ratios to base your score on?
If this is correct, what do you think the best way to get myself out of this is?
If I transfer it back to other card and close out Cap One is that helpful or does it work against you? I think I have heard that closing out accounts can have a negative affect, even if they are payed off?
I would like to preserve my scores.
Thanks Mia!
Answer
Cap one is not reporting to the bureau that I have a $14,000 limit, it just will tell them $7000 is on account?
They would have no ratios to base your score on?
Close. They would report $7,000 as both your Highest Credit and as your Current Balance, and the formula that calculates the FICO score will treat $7,000 as if it were your credit limit with the result that it will look as if you have charged the maximum amount on the card. However, the credit utilization on the card from which you transferred will look better than it did before.
Unless you need to apply for a mortgage, automobile loan or similar soon you may just wish to wait a couple months to see how the change actually affects your score.
You do not need or want to close the Capital One account, just lower the balance. You could do this by transferring to another card, but this will probably involves some expense in the form of a balance transfer fee on the other card. You could simply pay down the Capital One balance with funds from another source, such as your checking account.