Card Balance Transfer Considerations Pro and Con
Card Balance Transfer Considerations
So you received an invitation in the mail to apply for a new credit card. This card will give you 6 to 18 months interest free if you transfer your balance from your present card or cards over. If you have high credit card balances with high interest charges it seems to be a great deal with no strings attached. Of course the higher your balances are the higher will be the debt to available credit component of your credit score. This lowers your score and limits your eligibility for the card. The more you need it the less likely you are to be eligible! That may not make too much difference if your credit score is still high enough. The interest charges on the new card will wait but what will they be when they come? There is no balance transfer fee. Sounds like a great deal doesn’t it? Is it? How will this affect your credit score? What are the Card Balance Transfer Considerations Pro and Con?
It Depends. “Oh no. Here he goes again with ‘it depends’.”
I’m sorry I can’t always give a direct yes or no to questions of this nature. Credit scores are compiled through algorithms utilizing a variable set of principles. Consider these factors:
- The new card will require a hard inquiry. Whichever credit reporting agency gets the inquiry will take a few points off the average person’s credit score for a year.
- The new card will lower the average age of your accounts. This is referred to as your “time in file”.
- But the new card will increase the amount of your available credit. This benefits your “debt to available credit” ratio.
Keeping these bullet points in mind let’s suppose you do this without taking on any additional debt. Let’s further suppose you don’t close out the cards you transferred from. You have an improved debt to credit ratio and some breathing room on all that interest you were paying. The negative effects of hard inquiries only last for a year and are not that severe anyway. Your biggest source of potential damage is the lowering of the average age of your accounts. If you have several accounts of many years standing your average age of accounts will not be lowered by that much. If you are weak in the average age of accounts category in both length of time and number of accounts it will hurt more and have a more lasting effect. Half of the average age of accounts consists of the length of time you have held your oldest account. The other half is the average age of the aggregate of your accounts.
Debt to Available Credit Ratio is Critical
When it comes to debt to credit ratio your main concern is the ratio in the aggregate of your debt as opposed to the ratio on any one card. In other words you needn’t be overly concerned with whether one card is at 80 percent of the limit and another card is at 10 percent of its limit. If you have $10,000.00 in available credit on all your cards combined and the debt on all your cards combined is $2000.00 you have a very respectable debt to credit ratio of 20 percent. This does not mean it’s fine to leave 1 card at the max and the other card a 0. What it does mean is debt to credit ratio as a line item pales into insignificance compared to the ratio as an aggregate. Try to keep all your credit card balances under 30 percent.
For many people who properly weigh the factors to consider in when considering Card Balance Transfer Considerations it makes sense to do it. As in all financial matters aim carefully before you pull the trigger.