A 0% balance transfer offer can seem like an amazing way to eliminate credit card interest payments. Yet some credit card users remain concerned that taking advantage of these offers will hurt their credit score. In fact, the opposite may be true as there are several reasons why receiving a 0% APR balance transfer credit card may actually improve one’s credit score.
The effects of a promotional balance transfer
Applying for a new credit card and conducting a balance transfer will have several consequences to a consumer’s credit score. Fortunately, most of these effects are positive. The first thing that happens when a new credit card is applied for is that the card issuer pulls a credit report. Later, when the cardholder’s account is opened, that action is reflected as well. By itself, these two events can have a very minor and temporary effect on one’s credit. The only real problem would be if a cardholder applies for many different credit cards within a short period of time.
On the other hand, receiving the new card and completing the balance transfer will have several positive effects. Opening a new account will add to the total credit extended. This is important as a major factor in the FICO scoring system is the cardholder’s debt to credit ratio. The debt to credit ratio is computed by adding up the total amount of outstanding debt across all accounts and dividing it by the total amount of credit extended.
Consumers should strive to have the lowest possible debt to credit ratio at all times. And when a new account is opened, the cardholder’s debt to credit ratio will improve so long as new debt is not incurred.
Additionally, completing a balance transfer will prevent any one particular card’s credit limit from being exhausted. Most importantly, completing a promotional balance transfer will allow the cardholder to reduce their interest payments. And of course, with less of their money going towards interest charges, cardholders can eliminate their outstanding debt more quickly.
Promotional balance transfers are fantastic financial tools that credit card holders can use to overcome debt. And although it is clear that these transfers will not hurt one’s credit score, it is always important to take any effects into account before applying. By understanding how balance transfers affect credit scores both positively and negatively, cardholders can feel confident that their actions to relieve debt will not hurt their credit.
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