Do Balance Transfers on My Credit Cards Affect My Credit?

Like most offers that sound too good to be true, be careful about credit card balance-transfer offers. You might end up paying a bunch of money in fees or even lower your credit score.

Millions of these pre-approved credit card offers are mailed out every month. Often they offer 0% interest on all transferred balances for a time period. These balance-transfer offers allow you to use available credit from one card to pay off balances due on one or more other credit cards. Usually the special low rates expire after a certain time period. Moving balances that are being charged a high interest rate to a credit card with a much lower rate seems to make perfect sense.

Credit Balance Transfers and Credit Score

But transferring can reduce your credit score, which could cost you far more in other ways than it will save you on interest charges. Your credit score could drop because:

• If you a close a long-standing account (the one you transfer from), especially if it has been in good standing for over two years, your score will fall drastically.
• When opening the new card, or even just transferring the balance to an existing card, a credit inquiry will likely occur, dropping your score around five points.
• Adding another new credit account may lower your credit score because of your increased debt exposure (it may help in the long term, however).

Another issue to be concerned about is hidden fees. Depending on your past history and credit score, most balance-transfer deals require you to pay a fee. This could be a flat rate or a percentage of the amount borrowed. You also need to understand what happens to your rate when the limited-time offer expires and you still carry a balance. You might find yourself with a very high interest rate again.

If you pay close attention to the fine print and pay off the balance transfer amount during the promotional interest rate period, you can have a good experience and cut your monthly expenses by reducing your interest payments. And remember to keep your old credit card account open, or your credit score may drop big-time.

Tags: credit card balance transfers, low rate credit cards

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