Transferring balance from a high interest credit card to a new lower interest card can definitely save you money on interest, if nothing else at least until the introductory rate ends (if applicable). We all receive those infamous credit card offers in the mail, urging us to apply for a new card and transfer our high interest balance over, in order to take advantage of the lower interest rate that this new card has to offer.
This seems like a logical thing to do, right? I mean, lower interest rates on your credit accounts equals more money in your pocket, true? Yes, transferring your credit card balance from a high interest credit account to a lower one is an excellent way to save money on interest, especially if you carry a lot of debt on your credit card(s).
But how does this affect your credit rating and credit score? The answer to that question really depends on your situation, and how you go about it.
A closer look
Lets say you have $5,000 in debt on a credit card account from “ABC Credit Services”, which has a total credit line of $10,000. For this example, lets just say this is currently your only open credit card account. Since your debt takes up half of your total credit line, this would put your percentage of debt compared to your credit line, for this account, at 50%. We’ll call this your “debt percentage”.
You’re making payments to ABC with no problems and you seem happy with the account and the interest rate. That is, until one day you check your mail, and there it is, a credit card offer from “XYZ Credit Services” with a fixed interest rate set at half of what you’re paying now with ABC! Suddenly dollar signs start popping up in your head, and you start trying to figure out how much money you could save by transferring your $5,000 balance to XYZ. You then decide you’re going to apply for the account at XYZ. Your credit is good right? No problem! You receive the card in a week or so, and go ahead with the balance transfer.
So how does this affect my credit score?
How this balance transfer affects your credit rating and credit score really depends on what you do from this point on, and also what your credit line is on your new card from “XYZ”. If your credit line on your new card is lower than that of the original “ABC” credit account, then your “debt percentage” will be higher, which generally will lower your credit score. This would be true if you closed the original account at ABC, and kept your new account as your only open credit card account.
If you’ve had your “ABC” credit card for a while (maybe 2 years or more), and you have a good payment history with them, then it will most likely be in your best interest to keep that account open, even if you don’t use it. Especially if your credit line with your new lower interest card is below $10,000. Usually for the sake of your credit score, you don’t want to increase your “debt percentage”, you want to decrease it.
For example, if you keep both accounts open, you will have a total credit line of $20,000. With your $5,000 in debt on your new card, and your original account at ABC having no balance, your debt percentage would only be 25%, which is a good percentage and your credit score will reflect that.
Now reverse that and say that you closed your credit account from “ABC”, given that your credit line at “XYZ” stays the same, you would have a debt percentage of 50%, which is what you started out with in the beginning. Add to that a newly acquired credit card with little or no payment history on it, and you’re credit score would almost surely decrease, at least until you establish a longer payment history on your new account.
So for this example, it would probably be best to keep both accounts open. Your lower debt percentage could possibly offset the hit your score took from obtaining your new credit card. And looking to the future, it should look better on your credit report this way too.
Avoid increasing your debt percentage
When trying to keep your credit score as high as possible, try to avoid doing anything to increase your debt percentage. Even though the amount of debt you are carrying on your “revolving credit” is the same, it will always look better if you’re using 25% of your total credit, compared to using up 50% of it.
But don’t try too hard to decrease it either
Be sure not to take it too far by applying for more credit than you need, just because you think it will help your credit score by having an even lower debt percentage. Obtaining any new credit will generally bring down your credit score slightly, at least for a short period of time. Applying for credit too much and too often will almost always have a negative impact on your credit score, which is exactly what you don’t want. Your time would be better spent on trying to pay down this debt instead.
As with anything, being informed is the key
Balance transfers such as this can and will save you money on interest, if you do it right. Stay informed about how things like this affect your credit, and you should be just fine!
Watch the video related to credit
Help answer the question about credit
How can I get my credit build up if no one will give me a credit card to begin with?How can I get my credit build up if no one will give me a credit card to begin with? I have never had a credit card, I bought a home and I have been paying mortgage on time. Will that help my credit? I do have doctor bills on my credit report, any ideas as to how I can get rid of them without costing me a arm and leg.
ofc this is music….pop “music” is no music
good air guitar @ 1:21 !!
listen to the 2003 rock am one it sounds better
Credit Card Companies are in the business to make money anyway they can legally. High interest rates is the name of the game and thay offset the loses they incur from ones that don't pay their balances. Many declare personal bankruptcy. Just keep a zero balace and stop worrying. Credit cards are wonderful for us who pay their total balance each month;however, if your purchasesw are small and you can continue your no balance policy, you are lucky. The break-even point for card companies is about $3,500/Yr. purchases on a card. Under that, they may lose money because of their overhead, if the balance is paid off each month. I use Discover every time I can, even on small dollar purchases and actually get cash back on my purchases, not much but over the year it adds up at 1 and 2 dollars at a time.ie, I buy, don't have to pay for many days and make a little money.
What you should do is try to transfer all of your balances to a card with a fixed apr on balance transfers until the balance is paid off in full. You transfer all of your balances to this card, do not use it for new purchases and then pay it off as quickly as you can over time.
This type of card does not have a 0% APR but the savings can add up to more in the long run because the APR is fixed and will not skyrocket after the intro period.
That said, it sounds like you might have trouble getting approved for new credit right now, so you may want to call up your current credit cards and see if they will allow a fixed rate balance transfer.
THE fucking Metal Anthem. m/
Hail Metallica
MOSH PIT
people say this is not music i tell them FUCK YOU !!!!
man the crowd is amazing!!!! i havent seen them so jacked up since the crowds back in the 80′s!!!!
Yeah it does, and the 2003 version is way louder. Haha, did I blast that shit.
6:18 Bandera Chilena ?? xDD