How does a Balance Transfer Affect your Credit Rating?
Posted November 4th, 2008
and last modified March 10th, 2010Credit rating aside, balance transfers are possibly the most under-utilised techniques in consolidating and ultimately, reducing credit card debt. Although they can help you save loads of money on your interest repayments, the frequently asked question is: How does a balance transfer affect my credit rating?
Best Balance Transfer Credit Card for 2010
Voted by Money Magazine as the Cheapest Balance Transfer Credit Card for 2010. The Bankwest Lite MasterCard is the best value deal available with the lowest MasterCard purchase rate in Australia and a long term low interest balance transfer deal
- $59 annual fee
- 10.75% p.a. on purchases
- 21.49% p.a. on cash advances
- 1.99% p.a. for 9 months on balance transfers
A Determining Factor of your Credit Rating: Debt Percentage
The main issue regarding balance transfers affecting your credit score is the concept of ‘debt percentage’. This is essentially how much you owe on your balance, in relation to your credit limit. If you currently own one credit card with a credit limit of $4000, and your balance is $2000, your debt percentage is 50%. While there are no specific guidelines as to what debt percentage is acceptable, or at which point it starts becoming a detriment.
If you undertake a balance transfer of your $2000 balance to another credit card with a limit of $3000, your debt percentage has become 66%, even though you owe the same amount.
Balance transfers can also work in your favour for your credit score. If you transferred to a card with a limit of $10,000, your debt percentage would be 20%.
Therefore, your credit score is subjective to change either positively, negatively or neutrally, depending on your change in debt percentage.
The advantage of paying off little to nothing on your interest repayments after a balance transfer however, outweighs the effect on your credit card rating. Just keep in mind your debt percentage if you are frequently undertaking balance transfers.
“Can’t I simply apply for more credit cards, or ask for a credit limit increase to improve my credit rating”?
If you need a fast boost of credit rating, this is certainly not a quick fix. Credit score generally takes months if not years to improve, and in the short term, applying for more and more credit may even damage your overall credit.
What are the best balance transfer credit card offers in Australia at the moment?
Depending on whether you’d prefer 0% for 6 month, 2.9% for 12 month, or permanent ‘for life’ balance transfer offers, visit the best Australian balance transfer credit cards section.
Related posts:
- Will The Credit Crunch Affect Me?
- Bankwest Balance Transfer
- Is it Possible to do a 2nd Balance Transfer?
- Bankwest Balance Transfer Credit Cards
- 5 Ways to Improve your Credit Rating
- Credit Rating Score explained
- Balance Transfer Deals
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Editor's Choice: Our Top Credit Cards
St George Vertigo
Low Interest
Low 2.99% for 6 months (reverts to 11.99%) p.a. interest rate and balance transfer rate, from one of Australia's most respected banks.
Coles Group Source MasterCard
Bankwest Zero Platinum MasterCard
No Annual Fee
Excellent introductory offer with a $0 annual fee for the life of the credit card and a 1.99% p.a. for 9 months on balance transfers