How does a Balance Transfer Affect your Credit Rating?

The Balance Transfer and Your Credit Rating

A credit card balance transfer will affect your credit rating. It can make your rating somewhat worse; it can make your rating somewhat better. It all depends on how you execute it.

The Facts of Life

First, a fact of life, and there’s nothing you can do about it: Opening a new account, whether or not it’s for a balance transfer card, will put a ding on your credit report. Why? Folks opening new accounts are suddenly able to take on more debt, which increases lender risk. Another (good) fact of life: If you keep making payments on time and don’t max out your available credit, you will remain in the good books of potential lenders.

The Harsh Realities of Balance Transfers

Those 0% balance transfer come-ons look mighty tasty, don’t they? Especially if you find yourself carrying a rather large debt on a rather high-interest card. Check the harsh realities:

• Pretty Darn Good Credit Score

  Want one of those zero percenters? Well, you better have a pretty darn good credit history, because if you don’t, you probably won’t qualify for a 0% balance transfer rate, maybe not even a low rate. Shop around for introductory rates for which you can qualify.

• Balance Transfers Are Not Created Equal

  The gig is, most cards, but not all, actually charge a higher interest rate for balance transfers than they do for new purchases. So, diligent shopping is required to find a card, not necessarily a balance transfer offer card, that will make it worth your while to move debt from one card to the next. Obviously, if you’re paying 18% on the balance on the old card, it would be cheaper to pay a lower rate on a balance transfer to a different card.

• Sneaky Balance Transfer Fees

  Another thing to watch out for with balance transfer cards, even the 0% beauties, is that they often demand a one-time balance transfer fee that is appropriated at between 2-5% on the amount transferred. These fee impositions are often found in the fine print, of course. In Australia these are currently rare, however, the trend is increasing so it pays to research.

The Balance Transfer Balancing Act

Okay, you’ve qualified for a pretty good balance deal, here are you a few things you have to consider aside from the small inevitable credit ding you get for opening a new account. Either circumstance negates any wonderful balance transfer savings you may have anticipated.

• No New Purchases

  Don’t put any new purchases on your new balance transfer offer card unless you PAY YOUR BILL IN FULL every month PLUS put money toward the balance transfer. Any new purchases will sit on the sidelines collecting the usual interest fee until you get the balance transfer paid off.

• Honeymoons Don’t Last Forever

  Also, if any of your balance transfer is still on the books when the introductory or “honeymoon” period is over, it slips into the regular, or sometimes even higher, interest rate. Read all about it in the fine print.

The Debt to Credit Ratio

This ratio affects the willingness of credit issuers to offer you more credit. What does this mean? If you have $10,000 credit available to you on one or two cards and you have a combined total of $3,000 worth of debt on those cards, you have a debt to credit ratio of 30%. Of course, this will fluctuate throughout the use of the cards.

Though there are no strict benchmarks, the higher your debt to credit ratio, the less interested card issuers will be in extending you more credit. And putting a new balance transfer offer card onto your credit report can affect this ratio in good or bad ways. Let’s take a look a three hypothetical situations.

• Hypothetical Situation One

  You have a card that carries a credit limit of $10,000. You have debt on it of $2,000. That’s a good debt to credit ratio of 20%. Buy, you want to move that $2,000 to another card because the interest rate is too high. The card you chose has a good interest rate, but the credit limit is only $5,000. After the transfer, your debt to credit ratio leaps to 40% when you cancel the old card.

• Hypothetical Situation Two

  This works in the opposite direction. You have a card with a credit limit of $5,000 and a balance of $2,000. Your debt to credit ratio is 40% – not so good. Move that debt to a $10,000 limit credit card and your ratio goes down to 20% – good.

• Hypothetical Situation Three

  Go back to situation one. Do everything it says except keep the old credit card open. You will have two cards, the old card has a credit limit of $10,000, your new card has a limit of $5,000. Your total debt is now $2,000 against a limit of available credit at $15,000. Your new debt to credit ratio is now 13.3% – good. So, if that old credit card is in good standing, hold onto it. Your lower debt percentage will 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.

The Not-So-Clever Trick

So, when executing your balance transfer, try to keep your debt to credit ratio as low as possible. Now you’re thinking: “I’ll apply for more cards to lower my ratio even further.” Don’t go applying for more credit than you need just to improve your debt to credit ratio. Applying for credit too much and too often will inevitably have a negative impact on your credit score.

The Permanent ‘For Life’ Balance Transfer

These are another ploy to get you to move your hefty balances from other credit cards. The guise being that you can take as long as you like to pay off the balance transfer. But the same conditions apply as found on other balance transfer cards. Any new purchases sit on the sidelines collecting the usual interest rates.

The interest rates on the “for life” balance transfer will be somewhat higher. And the same pitfalls exist to drag you deeper into debt. Unless you really need this sort of balance transfer and are willing to exhibit the same discipline as outlined above, these are not worth using. Nor will they help your credit rating without the discipline.

Balance Transfers Require Discipline

If you have the discipline to handle a balance transfer card, and a keen drive to reduce your credit card debt, balance transfer cards can work wonders. They can help improve your credit history. If you lack either discipline or drive, don’t waste your time or your money. You’ll just end up deeper in debt.

Are You Still In the Market for a Balance Transfer Card?

Depending on whether you’d prefer 0% for 6 months or a 2.9% for 12 months you should visit the best Australian balance transfer credit cards section of this website. Just remember to choose wisely. A balance transfer does affect your credit standing.

Check out today's featured offers:

Westpac Low Rate	Citibank Clear Platinum	Qantas AMEX Discovery	ANZ Platinum
0% p.a. for 6 months on purchases & balance transfers	2.9% p.a. for 12 months on balance transfers	$0 annual fee Up to 10,000 Bonus QFF Points	0% p.a. for 6 months on purchases & balance transfers

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Popular Credit Card Offers

			Interest Rate (p.a.)	Balance Transfer Rate (p.a.)	Annual fee	Cash Advance Rate (p.a.)
	Westpac Low Rate Card - 0% Offer	A credit card with a low rate offer on both balance transfers and purchases, plus a low annual fee.	0% for 6 months (reverts to 13.49% )	0% for 6 months	$45	21.49%
	Citibank Clear Platinum Card	Competitive interest rate on purchases and balance transfers offer.	11.99%	2.9% for 12 months	$99	21.74%
	St George Vertigo	Take advantage of this great offer from St.George with a low rate on purchases and a low balance transfer offer.	13.24%	0.99% for 12 months	$55	21.49%
	ANZ Platinum Credit Card	An introductory interest rate offer on balance transfers and purchases, plus a $0 first year annual fee.	0% for 6 months (reverts to 19.24% )	0% for 6 months	$0 annual fee for the first year( $87 thereafter)	20.99%