A balance transfer credit card is a great way to reduce your overall credit utilization. It will also help improve your credit score. The new card will likely have a high balance at the time of the balance transfer, so it will be important to pay it down as quickly as possible. You can avoid having a negative impact on your credit score by not applying for a credit card that balance transfers credit cards.
Positively
Positive and negative effects can both be had by balance transfers on credit scores. Balance transfers can lower your average credit score and reduce your debt percentage. By making timely payments and quickly paying off your debt, the negatives can be minimized. Balance transfers are a great way to improve your credit score without applying for new credit.
The negative effects of transferring a balanced are temporary. Although a balance transfer doesn't affect your total credit limit or individual card usage, it can have a temporary impact on your credit score. This may affect your credit score in the short term, but the interest savings and ability to pay off your debt faster should more than offset these short-term negatives. WalletHub's free credit score tool can help you determine if a balance-transfer will affect your score.
Negatively
Balance transfers can be a great way to improve your credit score. But it's important that you use them correctly. Performing them on multiple credit cards or adding to your credit card's usage can lower your score. Before you make a balance transfer, be aware of the potential negative effects.
You can see the positive effects of a balance-transfer when you make timely payments. It increases your credit utilization ratio, and your credit-to debt ratio. A new credit card can also increase your credit limit. Lenders do not like credit utilization rates of 30% or more.
Before applying for a balance card, verify your credit history
You will typically need to have excellent credit in order to get balance transfer credit cards. However, balance transfers are sometimes allowed by some credit card issuers with fair credit. In addition, balance transfers are not always with the same bank as the credit card you're transferring the balance from. Some credit card issuers allow you to transfer the balance to another card, which allows you to make a cash deposit to your checking account.
You can check your credit report for free using a service like Credit Karma. Credit score tools can also be used to determine the best balance-transfer card. These services will also show you which cards have the best introductory 0% APR periods. It is possible to also compare the various rewards programs and other additional benefits.
Plan repayments over a longer-term at a lower interest rate
Consider a repayment plan if your credit card debt is too high and you are finding it difficult to pay the monthly bills. This will reduce your monthly costs and increase your credit score. Credit utilization is also known by the "amounts due" category of your credit report. Your goal is to reduce your credit card balances to less than 30% of your total credit.
Hard inquiries have an impact on your credit score
Hard inquiries, which are listed on your credit report, can have a negative affect on your score. These are typically the result of an application for credit, such as a car loan or student loan. These inquiries will not directly impact your credit score but will appear on your credit report up to two years after they have been completed. As part of an apartment application, landlords may also make hard inquiries. FICO counts these checks, although landlords aren't required to do so.
An inquiry can reduce your credit score by 5-10 points depending on the information in your credit file. However, FICO estimates that most consumers will see a very minimal impact. FICO believes that this temporary effect will diminish or disappear as your credit rating improves.