Tuesday, October 4, 2022

What Happens When You Transfer Credit Card Balance

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Balance Transfers And Your Credit

Credit Card Balance Transfers: What you need to know

To get a new credit card with a low or 0% interest rate, you often need good credit scores. If you have low credit scores and still manage to get approved for a new card, the interest rate will probably be too high to make the balance transfer worthwhile.

Because a balance transfer involves opening up a new line of credit, it will also lead to a hard credit inquiry, which will cause your credit scores to decrease initially. However, in the long run, the transfer could have a positive impact on your credit history if you are able to pay down your debt faster without any interest accumulating on the new card.

Finally, opening a new account will increase your available credit and lower your credit utilization rate, or debt-to-credit ratio. Still, you could end up hurting your if youre not careful. Continuing to use the old card even after completing a balance transfer could increase your utilization ratio, add to your debt and potentially get you back into the same situation that led you to seek a balance transfer in the first place.

What Is A Balance Transfer Fee

Most balance transfers arent free. Many credit card issuers charge a small percentage of your transfer as a balance transfer fee.

Balance transfer fees can quickly become costly. For example, if you wanted to transfer a $10,000 loan to a card and the issuer charges a 3% transfer fee, youd find yourself paying a $300 balance transfer fee. You can avoid a fee by doing your research and transferring your debt to a fee-free balance transfer card such as our Classic or Founders Card.

Negative Credit Card Balance: Main Points

Having a negative balance on a credit card isnt a bad thing, but it has some points to consider:

  • Negative balances dont affect credit. Most credit models typically consider negative balances equivalent to a $0 balance. This means a negative balance wont hurt a credit score.
  • Negative balances wont improve a credit score, either. Frequent card users will likely zero a negative balance within a short period of time, meaning there may not be a long-term effect on their credit utilization rate .
  • A negative balance means a cardholder is usually in good standing. Paying off your balance every month will ensure that you keep your credit utilization rate low, make on-time payments, and maintain or improve a healthy credit score. Finding a credit account with a negative balance likely means youre on top of your bills and keeping up with financial decisions.
  • Having a negative balance can make closing a credit account more cumbersome. While its not the worst consequence to deal with, closing a credit account with a negative balance means there are a few more steps involved to get your money back and close the account for good.

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Is There A Limit To How Much You Can Transfer

Credit card issuers have different balance transfer policies that can limit the amount you can transfer relative to your new cards credit limit. Some will allow you to transfer up to the entire credit limit on the new card, while others may cap the amount you transfer to 75% or 95% of your credit limit.

For example, American Express will only allow you to transfer $5,000 or 75% of your credit limit , while Chase allows you to transfer up to 95% of your credit limit or up to $15,000 .

Plus, you wont know exactly what your credit limit will be until after youre approved for the new balance transfer card making it difficult to project how much of your existing debt can be moved to the card. Your credit limit is generally based on the card issuers review of your credit score and credit reports, and you cant transfer more than the credit limit youre given.

Before you apply for a new balance transfer card, its best to research the cards terms online or by calling the issuing bank to find out exactly what that issuers policy is on how much of your new credit limit can be used for a balance transfer.

What Should I Look For In A Balance Transfer Card

What Happens to Your Credit Score When You Transfer a Balance?

Some of the most important factors to consider before applying for a balance transfer card include the length of the intro APR period, the regular APR after the intro period ends and any balance transfer fee. While its possible to find a card without a balance transfer fee, the intro periods for those cards tend to be shorter. Otherwise, a fee of 3% to 5% of the amount transferred will be added to your balance. Finally, while this shouldnt be your primary concern when looking for a balance transfer card, a balance transfer card that also earns rewards might be a good choice if you want to keep using it once the transferred balance is paid off.

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Can You Do Balance Transfers Back And Forth

Yes, but theres a limit to how many times youll be able to continue opening new 0% interest cards. Why is this the case? Well, each time you transfer your debt to a new card you apply for, a hard pull is required on your credit, which temporarily lowers your credit score. If you try to transfer your debts to new cards several times, you run the risk of getting a lenders attention for all of the wrong reasons.

A credit card company may flag your account which means it may be harder to get approved for the next credit card balance transfer you try to initiate this, in turn, may lead to a higher interest rate while youre still attempting to pay off your debt.

What Happens After You Pay Off A Balance Transfer

The most common case where people wonder if they should cancel their balance transfer credit card is when theyve paid off their debt. After paying off your balance transfer, the first thing that should happen is you congratulate yourself for making it out of debt so quickly. Note that your balance transfer credit card will not automatically close after it has fulfilled its purpose. If you do not close the account yourself, it will remain as a regular credit card, one that will eventually start charging APR when the promotional period is over.

Before you consider canceling, make sure that you no longer use the card for convenience shopping or emergencies. You cancel your only after you have paid off your balance so that your score doesnt go down due to not having any open accounts.

When deciding whether or not to cancel your balance transfer credit card, you should consider each instance separately. For example, if your interest rate has increased on the new card but is still considerably lower than what you were paying with your old card, there may be no reason to close the account. However, if you can qualify for another low-interest offer, you may want to cancel your old card.

When thinking about whether or not to keep your balance transfer credit card open, the main thing you should think about is if it has an annual fee. If there are no added fees associated with keeping your balance transfer credit card, you can go ahead and close it once completed.

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How To Do A Credit Card Balance Transfer

How do credit card balance transfers work? After getting approval for a card with a 0% interest balance-transfer offer, find out whether the 0% rate is automatic or depends on a credit check. The next step is determining which balances to transfer cards with high interest rates should come first.

Next, calculate the transfer fee, which is typically 3% to 5% . Is there an amount cap on the fee? If not, that can make transferring larger balances worthwhile. Also check the on your new card before you initiate a transfer. The requested balance transfer cannot exceed the available credit line, and balance-transfer fees count toward that limit.

How Long Do Balance Transfers Take

What You Need To Know Before You Do A Credit Card Balance Transfer!

You can generally expect a balance transfer to take around three to seven days, but there are situations where it could take up to six weeks. If a payment is due on the credit card from which you made the transfer, make sure to pay it until the balance has been moved to the new card, so you dont get charged a late fee. On-time payments are the most important factor in building and keeping a good credit score.

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Do I Need To Spend On My New Card

Many consumers wonder if they need to use the card once theyve got it. The answer is no. Many 0% APR offers only applies to balance transfers, not to new purchases. Depending on how your payments are allocated by the card issuer, you might have a hard time paying down the new purchases youve made which are accruing interest.

Card issuers are required to apply any amount over your minimum payment to the portion of your balance with the highest interest rate, but the minimum payment itself can be allocated however the card issuer wants. That means your minimum payment may go toward reducing the interest-free portion of your debt, not new purchases that may carry a high rate. Read the fine print on the credit card offer and see how new purchases are handled what the interest rates are and whether new payments attack the interest-bearing portion of your balance first.

Some cards offer 0% APR on both balance transfers and purchases. The Wells Fargo Active Cash® Card, for example, offers a 0% intro APR on Purchases for 15 months and 0% intro APR on Balance Transfers 15 months from account opening on qualifying balance transfers, and then the ongoing APR of 17.24%, 22.24%, or 27.24% Variable APR. It also gives new cardholders a bonus: Earn a $200 cash rewards bonus after spending $1,000 in purchases in the first 3 months.

» SEE:5 times a balance transfer is a bad idea

Balance Transfer Credit Cards In A Nutshell

A balance transfer can be helpful in streamlining your finances. Consolidating your debt to a credit card with a lower interest rate may also save you money on interestâand a few headaches. Knowing the pros and cons of a balance transfer offer can help you maximize the benefits. And if you decide itâs right for you, youâre ready to start comparing low introductory rate credit cards from Capital One.

We hope you found this helpful. Our content is not intended to provide legal, investment or financial advice or to indicate that a particular Capital One product or service is available or right for you. For specific advice about your unique circumstances, consider talking with a qualified professional.

Capital One does not provide, endorse or guarantee any third-party product, service, information, or recommendation listed above. The third parties listed are solely responsible for their products and services, and all trademarks listed are the property of their respective owners.

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How Do Balance Transfers Work

A balance transfer involves moving outstanding debt from one credit card to another cardtypically, a new one. Consumers generally use credit card balance transfers to secure a significantly lower promotional interest ratesay, 0% for 12 to 18 monthsand perhaps better benefits, such as points for purchases or rewards programs for earning cash back.

If you have been approved for a card with a 0% interest balance transfer offer, find out whether the 0% rate is automatic or depends on a credit check. Next, decide which balances to transfer cards with high interest rates should come first.

There also will be a transfer fee that is charged on making the balance transfer. Typically, the fee will be 3% to 5% . If there is an amount cap on the fee, then it can make transferring a larger balance worthwhile. Be sure to check the on your new card before you initiate a transfer, as your requested balance transfer cannot exceed the available credit lineand balance transfer fees count toward the limit.

Your Balance Transfer Questions Answered

Does A Balance Transfer Affect Your Rewards Points?  Forbes Advisor

Balance transfers are usually used for credit card debt. But some issuers also let you move balances from other accounts, such as personal loans, student loans or lines of credit.

Balance transfers can help you pay off debt faster, which can improve your credit score. Debt is an important factor credit agencies consider when determining your credit rating. The less debt you carry, the better.

If youre applying for a new card with a balance transfer promotion, youll need to go through a hard credit check. Hard checks show up on your credit report and can put a dent in your score, but its minor and temporary.

You wont earn rewards on a balance transfer because theyre considered a different type of credit card transaction than purchases. But remember that the purpose of a balance transfer is to pay off your debt, not maximize rewards.

When the promotion ends, the interest rates go back up. For example, if you transferred $3,000 but could only pay off $2,000, youll be charged the regular rate for balance transfers on the remaining $1,000. So, try to pay off your entire balance before the promotion ends.

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How Much Does A Balance Transfer Cost

Most issuers charge a balance transfer fee of around 1% to 5% of the amount you transferred. The fee is usually added to your balance. So if the fee is 3% and you transferred $2,000, youll be charged $60, bringing your total to $2,060. Sometimes, an issuer will waive the fee or offer a lower fee as part of a promotion.

When Should You Cancel A Balance Transfer Credit Card

A balance transfer credit card is meant to help you pay off credit card debt that has high interest. If youve been considering a balance transfer card, its essential to know when and if to cancel the card.

For instance, does your credit score qualify for another offer? If so, is there an annual fee associated with your current account? What are some other benefits or drawbacks of keeping your new account open versus closing it after paying it off? These are all questions that youll need to answer before making a final decision. Hopefully, this post will help clarify whether or not you should cancel a balance transfer card.

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How Do I Transfer Credit Card Balances To Another Card

You’ll need to tell the credit card company the name of the financial institution, the account number, and the amount you want to transfer. How much you can transfer depends on your available credit. If you’re approved for the transfer, the credit card company you’re transferring the balance to will contact your old credit card company and pay off the balance.

Transferring a balance doesn’t close your old account – it only pays portion of the balance transferred. After the transfer is complete you’ll begin making payments on the transferred balance under the terms and conditions of the transfer offer.

Dont Use A Transfer As An Excuse To Overspend

The 3 Best Balance Transfer Credit Cards – Everything You Need To Know

Thinking, Im not getting charged interest, so it doesnt really matter how much I spend, is the worst mindset you can have when it comes to a balance transfer. Youre going to have to pay up at some point, so make sure to use a balance transfer credit card in accordance with a well-thought-out budget.

Otherwise, any savings you score will quickly be erased by finance charges when regular rates take effect. You may even incur significant credit score damage if you cant foot the bill.

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Follow Up On Your Balance Transfer Request

Once you have requested a balance transfer, youll want to double-check that everything went according to plan. In addition to confirming that the proper amounts were transferred successfully, youll want to keep an eye on your old accounts so you can pay off any interest that may have accrued between the date you requested your balance transfer and when the transaction was completed.

Do Balance Transfers Hurt Your Credit Score

When you get a balance transfer card, you can expect to see your score dip at first, since applying for a new card generates a hard inquiry on your credit score. However, with good behavior over time, you can expect to see your score increase thanks to more available credit and a decreasing balance .

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How To Do A Balance Transfer

  • Apply for a card with a low-interest rate offer on balance transfers. Or use an offer on a card you already have. To qualify, your account has to be in good standing.
  • Request a balance transfer. You need to know the amount of debt you’re moving, your account information and the name of the card issuer.
  • Keep making payments on your old card. Youre still responsible for any charges and interest until the balance transfer is approved. This could take anywhere from a few days to a few weeks.
  • Avoid making new purchases while youre paying off your balance transfer, so you dont get into more debt.
  • Pay off your balance before the offer period ends or pay it off as soon as you can. If you have a remaining balance, youll be charged the regular interest rate.
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