Balance Transfers and Your Credit Score

With the recent increases in credit card interest rates, many consumers are finding relief, at least temporarily, by choosing balance transfer credit cards. Using these kinds of cards can help you save a little cash and pay down high interest credit card balances. Using balance transfer credit cards, you can actually help your credit score in some cases.

Balance transfer credit cards are often promoted as a 0% interest card for a specific time period, such as  6 to 12 months. Consumers who opt to use these cards will typically transfer balances from higher interest cards. The upside of these offers is that the consumer can pay off credit card balances faster during the introductory period because there are no additional interest charges accumulating. If you can pay off the full balance before the introductory period ends, you can end up saving a lot of money. The drawback to the balance transfer cards is that when the introductory period is over, the interest rate will be raised and if you are not paying attention, you could end up owing more money in additional interest charges. There may also be fees associated with the initial balance transfer. Consumers are advised to read the fine print on all balance transfer offers before making a decision. If the balance transfer fee on any card is a percentage of the total amount transferred, you’ll have to weigh the pros and cons of that amount in light of the 0% interest period.

Credit scores are calculated by several factors in complex calculations. These certain factors related to the credit score calculations include payment history, outstanding debt ratios, length of credit history, new credit, and the types of credit you have.  By transferring balances from a high interest credit card to no interest card, you can improve some negative issues that may be affecting your score. However as a note of caution, whenever you transfer balances from one card to another, it is not necessarily wise to close your old card account. Depending on how long you have had the account opened, it could have repercussions on your credit. The longer you have an account active and in good standing, the higher your credit score calculation. You also need to be careful when dealing with balance transfers because if by doing so you lower your debt to credit ratio, you could be lowing your credit score. Your credit score will also be affected simply because you opened a new account. New accounts make up 10% of your credit score so it will have an impact on your score. The new account effect will not likely be as much of a factor though as it would if you closed older credit card accounts.

The end result in balance transfer transactions is to maintain less than 30% of your total credit being used. Don’t just jump at any balance transfer offer out there either. Each card company will offer different introductory terms and you should take the time to investigate what deals are available to you. Before applying for a new balance transfer credit card, make sure you request a copy of your credit report and see where your credit stands. You are eligible for one free credit report each year so take advantage. Review your credit report for mistakes that can cost you credit score points. Make sure your credit is top-notch before you apply for any new credit to ensure you get the best deal. Remember too, no matter how good all the offers may seem to you, select only one. Too much new credit at one time will drop your credit score fast, affecting your ability to get a good credit deal in the near future.

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This entry was posted on Saturday, July 18th, 2009 at 6:34 pm and is filed under Credit Card Advice, Credit Card Debt, Credit Card Use, Credit Score. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.