Authored by Lori Godin in Credit Card
Published on 12-10-2008
Credit card companies use 0% APR balance transfers as incentive for many of their potential customers. Depending on the credit rating of the card holder, they could be eligible for 0% APR on balance transfers for up to twelve months. These twelve months provides a window for the card holder to pay the principal, rather than the interest – making it easier to pay down your credit card debt.
A balance transfer can influence the ten percent of your credit score which is calculated by using the amount of new credit that has been applied for. Opening multiple lines of credit at once affects the length and history of the credit score, and should be avoided. Opening one account should not have a negative influence on the credit score.
Balance transfers can be used to increase the credit score, as transferring to a card with a higher limit could mean that the balance won’t be hovering at the limit. Having credit cards with balances hovering at the limit means that you are a higher risk to lenders and could risk not obtaining the credit that is being applied for.
A balance transfer has more positive effects on the credit score, then negatives. Not only should you apply for a balance transfer to a lower interest rate, but take advantage of the many credit card companies that are offering 0% APR introductory rates for customers – which allow the principal to be paid quicker.
Are there are catches that the customer should watch out for when it comes to a balance transfer? First, when making a balance transfer, watch the fees. Most cards charge an average of 3% of the amount that is being transferred, to a maximum. What is this maximum number? Ensuring this is affordable is important, as the cost of the balance transfer shouldn’t exceed the interest that would be paid on the other card.
Next, make your payments on time and in full. If payments are missed, than all privileges of the account are diminished. The interest rate can jump upwards of twenty percent, making the balance transfer a nightmare. After you have completed a balance transfer, ensure that all payments are made each month on time, and in the form of the minimum monthly payment to ensure 0% APR.