These days, there are more low- and no-interest credit cards being mailed to consumers than ever before, and with 0% APR promotional periods now lasting as long as 21 months, quite a few people are considering transferring their balances to these cards in order to protect themselves from accruing interest fees.These balance transfers can indeed be a good move financially. But if you’re thinking about making the shift, you should first consider the impact that transferring your balance will have on your credit score.
After all, transferring your credit card balance will definitely affect your credit rating – but whether it’s for better or for worse depends on a few things:
- How’s Your Debt Percentage? Whether or not a balance transfer sinks your credit score mostly depends on what sort of debt percentage you end up with after the transfer. For instance, if you have a $6,000 balance on a card with a $10,000 limit then you have a debt percentage of 60%. If you transfer that balance to a 0%APR card with a limit of only $8,000, then your debt percentage has suddenly jumped up to 75%. As a result, your credit score is going to take a hit. As a general rule, you should always transfer your balance to a credit card with a limit equal to or higher than the one on the card you currently own.
- How Often Do Creditors Inquire? Every time you apply for a credit card balance transfer, a check is automatically performed on your credit report. While balance transfers themselves won’t hurt your score, too many inquiries definitely will. Banks and other lenders don’t want to see a history of credit checks, because it suggests that you’re unable to pay your bills. Therefore, if you’ve already transferred your balance a few times, it’s probably better to avoid doing so again – at least for a little while.
- How Soon Will You Pay Off Your Balance? Since balance transfers are regarded as a step consumers take to avoid further debt, they can actually give your credit score a boost if you handle them properly. If you transfer your balance to a no-interest credit card and then pay it off before the promotional interest rate expires, you’ll be helping yourself in two ways. First, lenders will be able to see that you transferred your balance as a means of paying off debt rather than avoiding it. Second, with your debt cleared you’ll be able to qualify for a higher-limit credit card or even a rewards credit card, which will give your score a definite boost.
In conclusion, it’s safe to say that credit card balance transfers will always affect your credit score. Whether this effect is a positive or negative one is entirely up to you, the consumer.
If you crunch the numbers regarding your debt percentage and commit to paying off your debt rather than increasing it, these transfers will always help your credit score rather than hurt it.