Suppose I have a credit card with a balance on it (I don’t think the amount matters, let’s say $500). This credit card has some non-zero interest rate, say 10%. Assuming this card has no side benefits, if I receive an offer from a rival company which offers free balance transfers and no interest for X months, is there any good reason not to transfer the entire balance to this new credit card? Do balance transfers affect one’s credit rating? What prevents someone from just continually transferring their balance to an interest-free card every few months?
I’ve heard that one of the “tricks” of balance transfers is that while the transfered balance has no interest for X months, any NEW purchases you make on the card will have a huge interest, often above 20%. In addition, any money you pay on the card will go towards the transfer balance, meanwhile, all your new purchases are accruing interest at a large rate.
As for it affecting your credit score, I have no idea, though I have heard that merely having a Capitol One card causes your credit report to get flagged. Other dopers who are experienced in the troubles a Capitol One card brings can fill you in on that.
It seems like the rates for transfer and new purchase are pretty obvious on all the credit card offers ever since they had to report them in a certain size font on those tables. But even in a worst case scenario, couldn’t you just use the card as a way of holding the debt in an interest-free account until you pay it, while continuing to use the old card for new purchases?
Credit reports and scores seem to be one of the most common points of confusion on this board and elsewhere. People tend to think they are more complicated than they really are. In reality they are very simple and only take a few pieces of information into account.
That is basically it. There aren’t any of these complicated flags that people (who have never looked at their credit reports) seem to believe.
- They generally list only true credit accounts like credit cards, mortgages, and student loans. Things like utilities almost never appear on a credit report unless there is a contract (a promise of money over time).
- Credit reports list payment history on these accounts in the following buckets: 30 days late, 60 days late, and over 90 days late. You can pay every single bill late every single month and it will never affect your credit score unless it is 30 or more days late.
- The ratio of balances to credit is taken into account.
- The number of credit cards you have is taken into account.
- Things like income or job status are never taken into account in your credit score.
For the purposes of this discussion, you would eventually lower your credit score by getting an ever increasing number of credit cards. You available credit will balloon and this would eventually make you ineligible to keep getting new credit cards.
Combine that will annual fees and things, and it isn’t really worth it to do that although some certainly try. It can be a good financial move to do that transfer one time under certain conditions but the best option is usually just to pay it or never get the debt in the first place.
Yeah, what Bouv and b]Richard Parker** said. You have to watch the terms very carefully when doing any sort of balance transfer. It can be beneficial or it can screw you.
We did a balance transfer once - had gotten a credit card offer promising a full year of zero percent interest on the balance AND on new purchases. That was the real kicker - otherwise we would not have done it - or we would have done it, and put the card away and not touched it for a year. There was actually a transfer fee - 1% of the balance transferred - but that was considerably less than the balance would have cost had we left it on our existing card, or paid it via the home equity LOC (it was a house-related expense, so that would have been our fallback).
Bottom Line?
Assuming no annual fee, no interest rate for the period of time necessary to pay the balance, no balance transfer fee…
And, that one closes the account from which one transfers the balance…
Then, there is no reason not to transfer?
Closed accounts still affect your credit scores for a while mainly because of situations like this. People that just move balances instead of paying them show increased statistical risk to lenders. So, you may take a small hit on your credit score if you do it once. That usually isn’t very important unless you have a marginal score to begin with.
Other than that, it isn’t a horrible idea especially if the new card has other benefits.
I have done that at times. Such a deal. 0 interest rate for 3 months or 6 months or whatever to transfer balances.
Problem is I have almost always screwed up and not made a note of when the 3 months or 6 months was up. The month they actually do start charging interest is a shocker —27% or higher. And usually takes a couple months after actually paying the damned thing off to lose that super high interest rate.
Recommend strongly-------make a note when that 0% interest rate ends and pay it off one month early.--------assuming you really can pay it off easily.
If you can’t pay it off easily-------you really shouldn’t be doing these types of things.
Because they gotcha!! And that was their plan to begin with.
You can run, but you cannot hide.
I have a vague memory of reading the fine print once and discovering that (at least the card issuers I deal with) charge you something like 3% at the time of the transfer. Thus, you’d be signficantly increasing your balance every time you transferred, even though the rate in between would be low.
That might still be palatable (though dangerous) to someone strapped for cash. However, it’s a deal breaker to anyone who really has the money and just wanted to invest it instead of paying a balance off right away.
Oops… I missed the part in the OP about free balance transfers. Doh!
I just transferred all my debts to Citibank. They offered a rate of less than 1/3 the interest rate of my other cards for transferred debits. However if I spend any money with them I have to pay 18% and pay off the transfers first. So I cut up the card and threw it away.
Oh, and if you use some Discover balance transfers, the zero % APR is only good IF YOU MAKE AT LEAST SUCH AN AMOUNT OF PURCHASES per month. And the regular purchases are at your normal sucky APR.
Mr. Slant… thinking Discover sucks ever since his mom got one.
And the Amex Credit Cards (Amex Blue and Amex Clear) currently have 3.99% for life on balance transfers.