How Will A Balance Transfer Affect My Credit
Some people are hesitant to open a new card with a balance transfer offer because they fear it might lower their credit scores. Depending on your credit history, that might be true in the short term. But a balance transfer can still be a great move for your credit and your wallet in the long run.
Opening a new credit card and transferring a balance to it can affect your in several ways:
- When you apply youll typically get a hard inquiry on your credit reports, which can lower credit scores slightly.
- Opening a new credit card can lower your average age of accounts, which can lower credit scores.
- Having a new credit card will increase your total credit limit, which can lower your this can be good for your credit scores.
- If you transfer several balances over to the new card you can reduce your number of accounts with balances, which can be good for your scores.
Check out credit expert John Ulzheimers Q& A video to learn more.
Will Transferring A Balance Affect My Credit Score
That depends on a few factors. Applying for a new credit card will result in a hard inquiry on your credit report, which can lower your score temporarily. Adding a new card will affect your overall length of credit history, which could also temporarily lower your score. On the other side, a new card with a new line of credit can reduce your overall credit utilization, positively impacting your score.
Balance Transfer For Credit Card Refinancing
There are different reasons for completing a balance transfer. And one of the most popular is to refinancing existing credit card debt.
Here’s how a balance transfer for credit card refinancing works:
Sounds simple enough. But consider the pros and cons to make sure it’s the right move.
Examples: Two Simple Balance Transfer Scenarios
Here are two simple examples that show how a balance transfer might save you money.
Imagine you owe $1,000 on a credit card with a 20% APR. Unfortunately, youre only able to pay $30/month toward the debt.
If you pay only $30 every month and dont spend any more on the card, it would take over 4 years to pay off the entire balance. In that time, youd also be spending over $470 in interest on what was originally a $1,000 balance! When you only pay the minimum required on a card, most of what youre paying is interest. Paying the minimum payment can make it feel impossible to make a dent in your debt.
Do I Need To Use A Credit Card After A Balance Transfer
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Balance transfer credit card offers can be tempting. No interest for a year, for 15 months or for even longer? Where do we sign up?
But there are caveats. For one thing, even the best balance transfer credit cards usually charge a fee of 3-4%, so you have to do the math to make sure its worth it to move your balance. Plus, people with poor credit wont have the option, because these offers target people with great credit scores.
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When Does It Make Sense To Transfer A Balance
Transferring a balance can be hugely beneficial for some consumers, but it isn’t for everyone. Here are a few ways it can be a positive:
- Saving money on interest: Say you’re currently paying 20% interest on your existing credit card debt. If you transfer that balance to a card with an intro 0% APR of 18 months, even with a balance transfer fee, you’ll score massive savings by avoiding interest for an extended time. This can also help you pay down debt much faster.
- Simplified bills: If the credit limit on your new balance transfer card is large enough, you can transfer balances from multiple cards onto it. This allows you to consolidate multiple debts with various minimum payments and due dates into one streamlined monthly bill. This can make it easier to pay bills on timewhich helps you avoid late payment fees and keep credit scores healthy.
- More favorable terms: It’s possible that you can find a balance transfer card with preferable terms and conditions to your previous card, offering benefits beyond the intro period. For example, maybe it has no annual fee, no late fees, cash back or travel rewards, or other perks you didn’t have before.
On the flip side, balance transfers have some potential downsides:
Mistake : Taking Out Cash Advances
As part of a balance transfer card, you will inevitably be offered cash advances. Be wary. Make sure you are really signing up for a balance transfer because cash advances require extra-high interest and fees. Sometimes, credit-card companies send access checks for both types of transactions even side by side in the same envelope. If you use an access check to make the balance transfer, double check to make certain its the correct transaction.
As tempting as it might be to utilize a cash advance for emergencies, remember that it is borrowed money and the long-term implications could be disastrous.
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The Cards Regular Interest Rate Will Kick In
Introductory 0% APR offers on credit cards can last anywhere from a few months to nearly two years. But when that window closes, the card’s “normal” ongoing APR goes into effect. This interest rate will apply to all new purchases that you don’t pay off in full every month, as well as any unpaid balance from the intro period and it will be a much higher rate than 0%.
As of November 2020, the average APR for credit card accounts that incurred interest was 16.28%, according to the Federal Reserve.
Your specific ongoing APR will vary based on the type of card and your creditworthiness. The rate will be outlined in the terms and conditions when you’re approved for your card.
Compare Credit Card Rates And Fees
Balance transfer rate
Balance transfer amount
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Take Advantage Of A Lower Apr And Introductory Rates To Make A Dent In Your Debt
You could move your credit score in the right direction if you proactively use a balance transfer to pay down debt. Transferring a balance to a card with a low introductory rate allows you to pause” interest accruals so you can get a handle on your balance. Reducing your debt by paying off more than the minimum payments will drive your credit score higher by on-time payments and improving your credit utilization ratio.
Develop Good Credit Habits
Using a balance transfer to attack debt is a smart way to work toward better credit, but it’s not the only one. So if you’re trying to increase your credit scores, there are a number of tips to keep in mind, including:
- Pay your bills on time. This is the single most important factor affecting your credit score. If you have trouble remembering when bills are due, consider using calendar reminders, scheduled automatic payments and other digital tools to help keep your payments timely.
- Maintain low balances on your credit cards. When possible, pay your credit balances in full each month, which spares you interest charges and also promotes higher credit scores. Also, try to keep your card balances at or below about 30% of your borrowing limit to avoid pulling your credit score downward.
- Keep older credit card accounts open. Unless they carry expensive fees, keeping these cards open will preserve your amount of available credit and lengthen your credit history, both of which help your credit scores.
- Consider enrolling in the Experian Boost program. This allows your timely payments on utility and cellphone bills to be reflected favorably in your Experian credit score.
A balance transfer card can be a great vehicle for reducing overall debt and helping improve your credit scores. Making the most of a low or 0% introductory rate can save you big on interest charges, as long as you avoid the lure of taking on additional debt while paying down your transfer balance.
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After A Family Member Dies Relatives Are Sometimes Left To Deal With Their Credit Card Debt
When a deceased person leaves behind debt, like credit card bills, their estate pays off the balances. If there isnt enough money to pay them and no one else co-signed for the debt, creditors may be out of luck.
Thats because family members of a deceased person are typically not obligated to use their own money to pay for credit card debt after death, according to the Federal Trade Commission. But there could be some exceptions, like for joint accounts and certain laws that vary by state. Heres what to know.
Information Youll Need To Request A Balance Transfer
In this last section of the credit card application you will need to provide information about the credit accounts from which you want to transfer the balance. At a minimum youll need to know:
- The creditor name
- Your account number
- The transfer amount
The application may also ask for your payment address and/or customer service phone number, but these might be optional.
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Does A Balance Transfer Count As A Purchase
No, transferring balances between cards doesnt count as a purchase. This means you wont receive any cashback offered on purchases made with that credit card.
For instance, the issuer gives 1.5% cashback on purchases, and you transfer $1,000. You will not receive the $15 bonus for transferring credit card balances.
Pay Off The Balance In Time
The special low interest rate on the amount you transfer is called the balance transfer rate. It lasts for a limited time, usually between six months and two years.
After that, the interest rate goes up. The new rate may be higher than the interest rate on your original credit card. If you haven’t paid off the whole amount yet, whatever is left will attract this higher interest rate.
Be realistic about what you can afford to repay in that limited time.
Work out your monthly repayments to pay off the balance in time.
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Pay Off The Balance Sooner By Increasing Your Monthly Repayments
Once you receive your balance transfer card, you could pay off your debt quicker by increasing the amount you pay each month.
If you only repay the ‘minimum amount’, it will take you longer to clear the debt.
You may even end up having to pay a lump some at the end of the introductory offer.
Not paying the lump sum to clear the balance means you’ll start paying interest on the remaining debt. This may mean you need a new 0% balance transfer card to take advantage of another introductory offer.
This is a dangerous cycle to get into, and it could take you years to clear that one debt.
For more information on credit card debt consolidation and to find sources of debt help, explore our debt help guides.
Avoid Bad Credit Habits
After transferring a balance, it’s important that a cardholder assesses how they accumulated the high balance in the first place. Review past statements and evaluate where the money was spent. Someone might have relied on credit availability or just lived beyond their means without considering the consequences in interest and fees.
Steps to take going forward might include establishing a new or stricter budget or making drastic changes to get on track for better debt management. A credit counselor can also help.
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Things To Remember When Getting A Balance Transfer Card
Do not miss repayments on your old card Your credit card provider can stop the introductory offer if you miss a payment. Avoid missing repayments and paying a high interest rate by setting up a direct debit
Check your eligibility for a new card Depending on your financial situation, lenders might not approve your credit card application.
See if your application is likely to be successful without impacting your credit score using the Uswitch credit card eligibility checker
Do not buy anything on your balance transfer card Youll pay interest on anything you buy on your new card, and the rates can be very high.
Any repayments you make go towards paying off your spending first, not clearing your existing debt
Balance transfer fees Include the balance transfer fees when working out how much you need to repay and how much you’ll save by transferring the balance.
Even with the fee , youll likely to still be paying less overall than your current credit card debt
You may have to switch credit card provider To transfer your existing credit card debts to a balance transfer card you might need to switch providers.
Very few balance transfer credit cards allow you to transfer a balance with the same provider
Clear the balance within the 0% interest offer Make the most of the introductory period by transferring and clearing your balance before it ends.
You could set up a Direct Debit to ensure you never miss a repayment.
What Debts Can I Pay With A Balance Transfer
You can pay many kinds of debts with a balance transfer, including:
- Your mortgage payment, including home equity loans and lines of credit
- Other credit card balances, including store credit cards
- Auto loans
- Payday loans and title loans
- Utility bills, cell phone bills, medical debts, and other statements
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Which Cards Offer More Than Just Intro Apr Balance Transfers
If you havent signed up for a balance transfer credit card yet and youre just considering it, you might want to choose a credit card that offers excellent balance transfer terms along with other perks.
For example, the Citi® Double Cash Card offers 0 percent intro APR on balance transfers for 18 months, followed by a variable APR of 13.99 percent to 23.99 percent.
Theres no annual fee, yet you can also earn an unlimited 2 percent back on everything you buy 1 percent when you make a purchase and another 1 percent when you pay it off.
Also, consider the Bank of America® Customized Cash Rewards credit card, which lets you secure 0 percent intro APR on purchases and any balance transfers made within 60 days of account opening for a period of 15 billing cycles, followed by a variable APR of 13.99 percent to 23.99 percent. A balance transfer fee of 3% applies.
This card also comes with no annual fee, and you can earn 3 percent cash back in a category of your choosing , 2 percent back at grocery stores and wholesale clubs and 1 percent back on other purchases. Note that 3 percent and 2 percent bonus categories are offered on combined spending of $2,500 per quarter, after which youll earn 1 percent back.
Better yet, this card offers a $200 online cash rewards bonus when you spend $1,000 on purchases within 90 days of account opening.
Number Of Accounts With Balances
Theres another potential way a new balance transfer card might improve your credit scores as well. If you open a new credit card and transfer outstanding balances away from several existing credit card accounts at once, you may lower the number of accounts with balances that show up on your credit reports.
FICO scoring models consider the number of accounts with balances on your credit reports the fewer, the better. When several of your existing accounts are updated to show $0 balances, your credit scores may benefit. Again, just make sure not to close your original credit cards after theyre paid off or you could risk damaging your scores by accident.
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