How_Credit_Card_Balance_Transfers_Can_Affect_Your_Credit_Score

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How Credit Card Balance Transfers Can Affect Your Credit Score


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Summary:
Transferring balance from a high interest credit card to a new lower interest card can definitely save you
money on interest, if nothing else at least until the introductory rate ends (if applicable). We all receive those
infamous credit card offers in the mail, urging us to apply for a new card and transfer our high interest
balance over, in order to take advantage of the lower interest rate that this new card has to offer.


This seems like a logical thing to do, right? I ...



Keywords:
credit report, credit cards, balance transfers, credit score



Article Body:
Transferring balance from a high interest credit card to a new lower interest card can definitely save you
money on interest, if nothing else at least until the introductory rate ends (if applicable). We all receive those
infamous credit card offers in the mail, urging us to apply for a new card and transfer our high interest
balance over, in order to take advantage of the lower interest rate that this new card has to offer.


This seems like a logical thing to do, right? I mean, lower interest rates on your credit accounts equals more
money in your pocket, true? Yes, transferring your credit card balance from a high interest credit account to
a lower one is an excellent way to save money on interest, especially if you carry a lot of debt on your credit
card(s).


But how does this affect your credit rating and credit score? The answer to that question really depends on
your situation, and how you go about it.


A closer look


Lets say you have $5,000 in debt on a credit card account from "ABC Credit Services", which has a total
credit line of $10,000. For this example, lets just say this is currently your only open credit card account.
Since your debt takes up half of your total credit line, this would put your percentage of debt compared to
your credit line, for this account, at 50%. We'll call this your "debt percentage".


You're making payments to ABC with no problems and you seem happy with the account and the interest
rate. That is, until one day you check your mail, and there it is, a credit card offer from "XYZ Credit
Services" with a fixed interest rate set at half of what you're paying now with ABC! Suddenly dollar signs
start popping up in your head, and you start trying to figure out how much money you could save by
transferring your $5,000 balance to XYZ. You then decide you're going to apply for the account at XYZ.
Your credit is good right? No problem! You receive the card in a week or so, and go ahead with the balance
transfer.


So how does this affect my credit score?


How this balance transfer affects your credit rating and credit score really depends on what you do from this
point on, and also what your credit line is on your new card from "XYZ". If your credit line on your new
card is lower than that of the original "ABC" credit account, then your "debt percentage" will be higher,
which generally will lower your credit score. This would be true if you closed the original account at ABC,
and kept your new account as your only open credit card account.


If you've had your "ABC" credit card for a while (maybe 2 years or more), and you have a good payment
history with them, then it will most likely be in your best interest to keep that account open, even if you
don't use it. Especially if your credit line with your new lower interest card is below $10,000. Usually for the
sake of your credit score, you don't want to increase your "debt percentage", you want to decrease it.


For example, if you keep both accounts open, you will have a total credit line of $20,000. With your $5,000
in debt on your new card, and your original account at ABC having no balance, your debt percentage would
only be 25%, which is a good percentage and your credit score will reflect that.


Now reverse that and say that you closed your credit account from "ABC", given that your credit line at
"XYZ" stays the same, you would have a debt percentage of 50%, which is what you started out with in the
beginning. Add to that a newly acquired credit card with little or no payment history on it, and you're credit
score would almost surely decrease, at least until you establish a longer payment history on your new
account.


So for this example, it would probably be best to keep both accounts open. Your lower debt percentage
could possibly offset the hit your score took from obtaining your new credit card. And looking to the future,
it should look better on your credit report this way too.


Avoid increasing your debt percentage


When trying to keep your credit score as high as possible, try to avoid doing anything to increase your debt
percentage. Even though the amount of debt you are carrying on your "revolving credit" is the same, it will
always look better if you're using 25% of your total credit, compared to using up 50% of it.


But don't try too hard to decrease it either
Be sure not to take it too far by applying for more credit than you need, just because you think it will help
your credit score by having an even lower debt percentage. Obtaining any new credit will generally bring
down your credit score slightly, at least for a short period of time. Applying for credit too much and too
often will almost always have a negative impact on your credit score, which is exactly what you don't want.
Your time would be better spent on trying to pay down this debt instead.


As with anything, being informed is the key


Balance transfers such as this can and will save you money on interest, if you do it right. Stay informed
about how things like this affect your credit, and you should be just fine!




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