Avoid Purchasing Too Much
Purchasing things during the balance transfer period is a big no since it will just worsen your debt.;
The repayments youll make will likely go to your purchase if the rate of your balance transfer rate is 0%. This means that the repayments you are making are being used to pay off the purchase instead of going to your debt.
Will A Balance Transfer Hurt My Credit Score
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Thinking about moving high-interest credit card debt to a card with a lower rate or, better yet, a 0% interest period by doing a balance transfer? This move can save you hundreds of dollars while making it easier to pay down what you owe.
Balance transfers won’t hurt your credit score directly, but applying for a new card could affect your credit in both good and bad ways.
As the cornerstone of a debt-reduction plan, a balance transfer can be a very smart move in the long-term. Here’s what you need to know about how a balance transfer could affect your credit score.
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How Balance Transfers Affect Your Credit Score
Balance transfers can lead to big savings in interest, but opening new cards for the purpose of transferring a balance can affect your credit score either positively or negatively: so take care to know the advantages and disadvantages of balance transfers before you move your open balance. Find out what your credit score is today to establish a baseline, and be responsible when applying for new credit to keep your score headed in the right direction.
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What To Do After A Balance Transfer
Moving your balances to one credit card will make it easier to keep track of your debt and make payments on time. Avoiding late payments is perhaps the most important thing you can do to strengthen your credit.
To make sure you’ve got a strong footing when paying off debt, there are other steps you can take once a balance transfer is complete. Follow these guidelines to keep your credit strong:
A Balance Transfer Card Can Simplify Your Debt While Removing New Interest From The Equation It Can Also Affect Your Credit Scores In Both Good And Bad Ways
A new credit card can hurt your credit scores in a couple of ways: The application results in a hard inquiry, which causes your scores to drop by a few points, and the new account drops your average account age, which is one of the many factors that go into calculating your credit scores.
A new credit card can also help your scores in the long run by increasing your available credit and adding another account to your credit profile.
But theres one thing to keep in mind before you move your debt to a new balance transfer card: It wont fix any financial habits that led to the debt in the first place. So before you apply and transfer any balances, make sure you have a plan to pay off your debt and prevent yourself from getting into a similar position in the future.
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What’s The Apr After The Introductory Period
This rate will vary by card, but its important to pay close attention to this detail as introductory time periods can pass quickly and then you must start paying the regular APR on any remaining credit card balances. If you plan to keep on using your card after the introductory period expires, and you expect you may need to carry a balance, consider choosing a card with a lower-than-average rate.
How Much Are The Balance Transfer Fees
Most balance transfers will have a fee attached, often averaging from 3-5%. ;Sometimes these fees will be waived, but its pretty standard for balance transfers to come with a transfer fee. If you are transferring a $10,000 balance, that transfer fee could cost you $300 to $500 , for example. Also, note whether the fee is capped. Some credit card issuers will have a maximum of how much they charge in balance transfer fees when you open a new credit card account. Others don’t. A balance transfer fee shouldn’t automatic disqualify the card as an option though, as long as its other attributes balance out the fee. Some balance transfer credit cards come with a welcome bonus for new cardholders, for example, which could easily offset the cost of a balance transfer fee. The Wells Fargo Active Cash Card, for instance, offers new cardholders who spend $1,000 on purchases within the first three months of opening an account a $200 bonus. That bonus could easily offset the cost of the balance transfer fee associated with the card.
In the long run, a balance transfer fee is usually a small price to pay compared to the amount of money you can save on interest charges. Check out our balance transfer calculator to determine whether the cost is worth it in your case.
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Fewer Accounts With Balances
Another factor that influences your credit score is how many accounts with balances appear on your credit report. From a credit scoring perspective, its better to have fewer accounts with balances than too many.
Transferring balances from multiple credit cards or loans and combining them onto a single account reduces the number of accounts with balances on your credit report. When this happens, theres a chance your credit score might improve as a result.
Balance Transfer Pitfalls To Avoid
Balance transfers can help you improve your credit score, but only if you handle them wisely. To get the most from a balance transfer credit card, avoid these mistakes:
Not reading the fine print on card offers.;If you only look at the APR, for example, you may not notice a steep balance transfer fee. “The big thing is to read all the fine print and be aware of all the rules and restrictions that govern any balance transfer you might consider,” says author and speaker Lynette Khalfani-Cox, “The Money Coach®.” “For instance, how big a credit line might you be able to obtain, what will the interest rate will be once that zero percent rate expires, and what are the terms associated with this new card? All these aspects are important when you’re considering applying for a new credit card and doing a balance-transfer offer.”
Owing high balances after the introductory period ends.;It’s imperative that you pay off, or pay down as much as possible, your balances before the end of the introductory period. Otherwise, when you start paying the higher regular APR, you may be in worse shape than before. Khalfani-Cox says “If you know that it would take you, say two or three years to pay off your current credit card balance with its present interest rate, you can use an online calculator to see how much cash you’d save by doing a balance transfer.” If the transfer doesn’t save you any money, the answer is simple: Don’t do it.
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Do Balance Transfers Cost Anything
Yes – credit card companies usually charge a fee for balance transfers. The fee will depend on how much debt youre transferring, and the length of the introductory period.
When youre setting a balance transfer up, make sure that the initial costs of reduced interest payments arent swallowed up by the transfer fee.
What Is The Best Way To Pay Off A Balance Transfer
Getting a balance transfer card is a great opportunity to pay off your debt if you come up with a solid plan on how to do it. Make sure to find a balance transfer credit card that lets you consolidate an appropriate amount of your debt onto a 0% introductory APR credit card. To avoid lowering your credit score, try to keep the amount you transfer under 30% of the new card’s credit limit. You’ll need to consider how long you think it’ll take you to pay off your debt as introductory periods range from a couple of months to much longer, depending on the card you choose.
If you already have a good-to-excellent credit score, you should be able to find some solid deals from major card issuers. In addition to the length of the introductory offer, you’ll want to look at any balance transfer fees that might be associated with the card. That quite common fee means you may or may not outweigh the money you could save by making a balance transfer. It depends on the interest rate of the old card and how long you need to pay it off.
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What Is A Balance Transfer Fee
A balance transfer fee is a fee charged for moving a balance onto a new credit card. The balance transfer fee is charged by the balance transfer card . Its typically between 3% and 5%.
The balance transfer fee is charged as a percentage of the amount transferred and typically added to your overall credit card balance. For example, if you transfer $1,000 to a credit card with a 3% balance transfer fee, youll be charged a $30 balance transfer fee. Your new balance on the balance transfer card will be $1,030.
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A Balance Transfer Credit Card Is A Good Idea If:
- You want a lower interest rate. The biggest perk of 0% intro APR balance transfer credit cards is how much money they can save you. If you have credit card debt that youll be paying off over six months or longer, then a balance transfer could lead to big savings.
- You want to consolidate debt. When you have debt spread out across multiple credit cards, it can be difficult to manage. A balance transfer card allows you to consolidate debt so you only need to make one payment per month.
- Youre trying to boost your credit score. Credit card debt often results in a high credit utilization ratio, a factor that has a big impact on your credit score. Since opening a balance transfer card adds to your total credit, it will lower your credit utilization. That balance transfer could save you money and raise your credit score.
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New Hard Credit Inquiry
If you apply for a new credit card with a balance transfer offer, the application itself might have a slight negative impact on your credit score. When a lender checks your credit report, something known as a hard credit inquiry takes place. A credit inquiry means someone has accessed your credit, and a hard inquiry has the potential to damage your credit score.
In the long term, credit inquiries tend to be far less significant than the other information on your credit report. So, when youre deciding whether or not to apply for a new balance transfer credit card, keep the following details in mind.
- Not every hard inquiry triggers a credit score drop.
- After 12 months, hard inquiries no longer influence your credit score.
You want to be selective about when you apply for new credit. But as long as you dont overdo it, you dont have to be afraid of applying for financing, like balance transfer credit cards, when it can benefit you.
Watch Out For This Credit Score Killer
After a balance transfer, many people make a big mistake that can cause their score to drop significantly. That mistake is to run up a balance again on the card you transferred the balance from. If you dont want your credit score to take a hit, make sure you dont use that old, high-interest card. Dont close the account either, because that will reduce your credit utilization rate, thus hurting your credit score.
Transferring a balance from a high-interest credit card to one with a lower rate can be a good way to manage credit card debt and could provide debt relief. Just make sure you pay off that balance as soon as you can and dont add to it.
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How A Balance Transfer Can Help Your Credit Score
The simple act of performing a balance transfer isn’t going to affect your credit score much, if at all. The key to changing your credit score is to use the transfer to reduce your debt both in dollar terms and as a percentage of your available credit. Eliminating debt sends the kind of signals that result in better credit scores.
Every dollar you don’t have to pay in interest is a dollar you can use instead to pay down your debt. That allows you to shrink your debt faster and shrinking your debt is good for your credit. The amounts you owe account for 30% of your FICO credit score, and the dollar amount of your debt is a factor there. Another factor is your, or the percentage of your available credit that you’re using.
A good rule of thumb is to keep your credit utilization ratio below 30% at all times both on a per-card basis and across all of your cards. Adding a new card with a new line of credit reduces your overall credit utilization.
Lets say a consumer has two credit cards:
-
Card A: $5,000 limit with a $2,000 balance
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Card B: $3,000 limit with a $1,000 balance
This consumer has a 40% utilization ratio on Card A, a 33% utilization ratio on Card B and an overall utilization ratio of 37.5% . On each card as well as overall, this consumers debt is over the 30% ceiling.
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What Is Balance Transfer
A balance transfer happens when you remit or pay off the balances on your existing credit cards or loans by transferring them to another credit card account. Banks and credit card companies provide balance transfer facility that helps in transferring debt from one card to the other. It helps in consolidating the payments of all cards or loan EMIs, so that you do not have to keep a track of the different due dates.
Balance transfer also happens as a result of a good debt management strategy, but try not to make it a habit, if you do not want to have a large number of open credit lines. Balance transfer on your credit card can have an unfavourable impact on your credit score in the short term. If you keep certain things in mind while going about the act, you can minimise its impact in the long run.
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Tips For How To Rebuild Credit After A Balance Transfer
Adding a new credit card can temporarily hurt your credit score. But if you are able to use the cards balance transfer offer to lower your debt, the short-term credit hit can lead to long-term gain for your credit score.
Here are three tips for getting the most out of your balance transfer:
- Make a debt repayment plan that takes into account the length of your 0 percent interest period and stick to it. Paying off your entire debt during your intro APR period maximizes the benefits of your balance transfer and will help your credit score continue to rise afterward.
- While your 0 percent interest period is active, stop charging on your other credit cards. Use cash or debit cards to cover your expenses, so you are only paying down debt, not adding to it.
- When you resume using your credit cards, pay them off on time and in full to avoid charging up new credit card debt. Building a positive payment history, which is responsible for 35 percent of your credit score, will help you improve your credit as well as prevent interest accruing. In time, you may also earn back your grace period.
Balance Transfers Offer A Chance To Improve Credit
Does a balance transfer affect a credit score? A new card can be an effective step toward improving a debt situation, but it also comes with new adjustments to a score. Despite any temporary negative score impacts that come from the hard credit inquiry involved when applying for a new card, though, a new card should initially help decrease , a positive factor for a credit score. However, bear in mind that when an existing balance is transferred the new credit line could get utilized to an extent that it could lower your credit score. That’s because lenders don’t like to see credit utilization rise above 30%, ideally.
Money saved on interest with a balance transfer can help shrink overall debt faster. Lowering the amount of outstanding debt is always good for credit: In terms of score weighting factors, amounts owed account for some 30% of a credit score. Paying a credit card bill on time every month can also boost credit, as payment history has the most significant impact of a credit score. Other factors to be aware of include age and mix of credit, and a number of credit inquiries.
After transferring a balance to a new card, consider keeping the old account open. Closing an account can negatively affect a credit score, and keeping existing accounts open can keep the average account age high and lower the credit utilization. Just be careful not to let the extra available credit trigger more spending.
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