Balance transfers are an excellent way to pay off a large credit card balance. Balance transfers, on the other hand, will damage your credit score. To avoid this from happening, all credit cardholders must be aware of these five truths.
Balance transfers can help improve a credit score: Some of the best balance transfer credit cards are only available to those with excellent credit. Many that cannot apply for good offers may still be able to get them, but they may not be given initial credit lines wide enough to pass large balances. Customers in this situation should request that their credit card issuers, financial institutions, or banks consider lowering their interest rates on any balances that cannot be transferred.
New credit and hard enquiries: A hard inquiry is made on the credit report each time a customer applies for credit. Depending on the nature of the inquiry, a hard inquiry will result in a credit score drop. Customers should conduct research and apply for just one card to minimize the impact on their credit score. A small personal loan, rather than a credit card, could be a safer long-term choice to consider. Keep in mind that banks should not pass balances between two of their own credit cards in order to save money on interest.
Balance transfers can also improve a credit score: Applying for a new card with a balance transfer feature will help you minimize the amount of debt you owe on your current credit cards or loans while also lowering your credit utilization ratio. Credit utilization ratio reduction will appear on your credit report and eventually improve your credit score. Customers, on the other hand, who are not vigilant, risk ruining their credit score by skipping payments and taking up much too much credit. A balance transfer will help you pay off your debt faster by saving money on interest. Dealing with unexpected issues by reducing the amount of unpaid debt on your credit account is always a smart idea.
Credit utilization ratio: New credit availability from any form of card would raise a customer’s credit allowance and lower their credit utilization ratio, which is a major factor in an overall credit score calculation. It’s better to find a card with a credit limit far higher than the amount being transferred, but issuers won’t usually agree to what degree of credit line they’ll extend before you apply and they pull your credit report until you’ve got a pre-approved offer card.
Avoid bad credit habits: It is important that a cardholder considers how they came to have such a large balance in the first place after moving a balance. Examine previous financial statements to see where the money was actually invested. Establishing a new or tighter budget, or making dramatic adjustments to get back on track for better debt management, may be among the next steps to take. In certain situations, a credit counselor can be of assistance.
