How it Works
Transferring outstanding debt from one credit card to another new credit card is known as a balance transfer. Balance transfer credit cards are commonly used by individuals who require to transfer their debt to another credit card with a lower interest rate and better benefits such as rewards, cashback points for their daily spending. A credit card issuer waives the fees, which is a range of 3%-5% of the transfer money to attract cardholders. The credit card issuer might also offer an introductory time of between 6 to 18 months, where no interest rate is charged on the transferred debt. With dedication, cardholders can use these incentives to avoid high-interest rates while paying their debts by carefully studying the available offers.
How Does Balance Transfers Affect Credit Score
A balance transfer can be the best method for paying credit card debt; however, depending on various factors, it might help or affect your credit score. A cardholder with an excellent credit score, a score of more than 740, will qualify for excellent balance transfer credit cards. Cardholders with “fair” credit score may still be eligible for good deals, but they get first credit lines to sufficiently transfer large balances, they might ask their current issuers to give lower interest rates on the balance that might not be transferred.
For instance, when applying for various credit cards with low introductory rates can hurt your credit score. 15% of the credit score depends on how long the cardholder credit account has been open. The longer the statement, the better the credit score. Opening many new accounts can negatively affect the average age of the credit accounts, thus affecting the credit score.
And every time a cardholder applies for credit, hard inquiries are made on their credit report. Each inquiry has the chance to lower their credit score with several points. To reduce the negative effect on the credit score, it’s advisable to research and apply for one card. Find out if you are eligible for the best balance transfer cards available in the market. Another alternative is to apply for a small personal loan to help cover the debt.
Conclusion
When you choose to accept a balance transfer card, offer, note that the balance transfer fee plus the interest rates are not the only costs incurred on the transferred balance. If the cardholder uses the card to make new purchases, you might be charged a new interest on those purchases from the day of purchase. You might not get an interest free grace period that generally applies when you purchase in full before the billing due date.
The truth is, all credit cards are not equally made, some balance transfer credit cards are better than other cards. It’s advisable to get a new credit card with the aim of using its balance transfer offer until you know how the balance transfer works with the card issuer and if the transfer process will remove the grace period on any new purchases.