How Balance Transfers Impact Credit Scores: Dangers & Insights

How Credit Card Balance Transfers Can Damage Your Credit Rating

How can balance transfers affect your credit score negatively?

The information on this website is general in nature and does not take into account your objectives, financial situation, or needs. Consider seeking personal advice from a licensed adviser before acting on any information.

Since the banks and finance providers have been castigated for the way they seemingly indiscriminately awarded credit to people who could ill afford it, the chances of being accepted for loans and credit cards have decreased. Concurrently, there is a greater focus on individual's being aware of how credit works and what their financial behaviors means in terms of a credit score and history.

Why Balance Transfers Are So Readily Available

Concurrently, there is a greater focus on individual's being aware of how credit works and what their financial behaviors means in terms of a credit score and history.

The so called Credit Crunch has engendered a change in behaviours and has led to banks not only thinking about whom they extend credit to but also how they lend it.

It has also meant these card issuers have had to find new ways to increase custom.

Debt Stressed?

If you're struggling to pay your debts and covering living expenses, we're here to help. Through our national panel of Debt Management specialists, we can help customers with $10k or more in debt by consolidating your existing loans, stopping Debt collectors from contacting you and re-negotiating repayments on your terms!

... start your free debt analysis ...

The market has been hit with a whole slew of prepaid credit cards but also balance transfer offers have become a major marketing tool in the battle for new customers.

What is a balance transfer?

Quite simply, a balance transfer is moving the outstanding balance from one credit card to another that has a lower rate of interest. It is a simple way of reducing your monthly repayments on your card balance.

Why are they so attractive right now?

The credit card marketplace is highly competitive and these transfer is a relatively low risk option for the issuers to attract new customers. The need to attract new customers without creating a whole new generation of credit card owners unable to pay their debts has resulted in very attractive credit cards with transfer offers. Most major US issuing banks now have 0 balance credit cards in their portfolio of financial products. With offers extending from zero interest from 3 months right up to 18 months, there appears to be a credit card war raging with each bank trying to introduce the most attractive transfer offers.

Why balance transfer offers are not a get out of jail free card

The mere idea of reducing your monthly out goings by transferring existing credit card balances to a new card or cards where you can obtain an extended interest free period is very enticing. Prima facie, it seems entirely logical and indeed, eminently sensible. There are however, certain considerations that need to be taken into account before simply responding to the click here or apply now button on 0 balance interest credit cards:

You can adversely affect your credit score

Every time you make an application for a new card or apply for new credit of any form (loan, mortgage, cash advance and hire purchase), there is a note made on your credit file and your score is impacted with a reduction.
If you apply for multiple credit cards or respond to a number of balance transfer offers in a short period of time, there is a significant impact on your credit score.

There are fees involved

No credit is for free; even those deals with 0% interest on balances transferred will have an associated fee - after all, these card provider still has to make money from your transaction even if you are paying zero interest. Typically, balance transfer fees can be between 3-5% of the balance transferred meaning that when your interest free period starts it is with a higher amount that you had on your old card.

The APR after the initial offer period is high

One of the major pitfalls you could fall into is to take advantage of a balance transfer offer only to find that after the offer expiry date, the APR is higher than you were paying on your original credit card from where the balance was transferred.

It is imperative that you read the small print and are fully conversant with the interest rate you will be paying after the interest free period.

What not to use balance transfers for

When you are facing debt issues it is easy to succumb to ways of managing your finances that seem entirely logical at the time. There are two main ways of not managing your finances with balance transfer offers:

Do not use it as an excuse simply to get another credit card

If you are transferring a balance the temptation is there to keep the original credit card thereby increasing the availability of the credit at your disposal. This is a definite no-no unless you can absolutely afford the repayments on all of your cards
Do not use balance transfers as a way to avoid paying your debt.

The attraction of balance transfer offers does actually promote a way of carrying the debt; instead of paying off the debt you merely transfer it from one card to another and repeat after each introductory rate expires

In conclusion, are balance transfer offers and 0 balance transfer credit cards a bad thing? No! Not at all, but like every form of credit, they require close scrutiny before application and responsible management thereafter

Published: Sunday, 1st Aug 2021
Author: 148

Truck Loans Articles

How to maintain your truck to extend its lifespan in Australian conditions

Maintaining your truck is essential if you want to prolong its lifespan and save money down the road. Australian conditions can put a lot of strain on your vehicle, and neglecting its maintenance can lead to costly breakdowns and repairs. - read more

Essential Document Checklist for Truck Loan Approval: What You Need to Know

Getting the right truck loan can be essential for business owners who rely on commercial vehicles. These loans cover a variety of commercial vehicle types and are crucial for ensuring your business operations run smoothly. Truck loans, specifically, provide the necessary finances to purchase trucks, which are indispensable in industries like logistics and delivery services across Australia. - read more

From Small to Big: Financing Your Truck Expansion in Australia

Expanding your truck fleet is a critical step in driving business growth. For many small businesses, increasing the number of commercial vehicles means accessing new markets, delivering goods more efficiently, and ultimately, boosting profitability. In the competitive Australian market, staying ahead requires not just maintaining but expanding your transport capabilities. - read more

How to Get a Truck Loan with Less-Than-Perfect Credit

Securing finance for any significant purchase can be a challenge, especially when it comes to acquiring a truck for business purposes. Coupled with a less-than-perfect credit score, this task can seem daunting for many Australians. The ripple effects of financial constraints can impede business operations, affecting the lifeline of commercial ventures that rely on transportation. - read more

Understanding the Fine Print: What to Look Out for in Truck Loan Contracts

Stepping into the realm of commercial truck financing can be a highway riddled with complex terms and conditions. Understanding commercial truck loans is not only about getting the keys to a new vehicle; it's a crucial investment in your business's future. As a borrower, you need to navigate through the fine print to find a loan that fits like a glove. - read more

Finance News