Dos and Don'ts For Credit Card Balance Transfers

Dos and Don'ts For Credit Card Balance Transfers

Shifting debt from one credit card to another can save you lots of money – particularly if you’re taking debt from one high interest rate card and transferring it on another lower interest rate card.

Here are some do’s and don’ts if you’re considering a credit card balance transfer.

DO Look at the Entire Deal
Too often, when people conduct balance transfers, they only look at the interest rates of the credit cards involved. But it’s really wise to look at the overall deal you’re getting.

For example, is there a fee involved to do the transfer? If so, how much? Does your old or new card have an annual fee? What terms apply to each card? What credit limits will be imposed on each card?

Weigh all of these factors in your decision-making, and do the math to make sure a balance transfer makes good economic sense.


DO Get Online
Comparison shop online to make sure you’re getting a good deal. Several consumer-friendly websites – such as Bankrate.com, CardWeb.com and CardRatings.com* – will help you shop around, which can save you time and money when you’re trying to find a card that best fits your needs. The sites let you search for cards in multiple categories, such as:

• Low rate (ranked by APR)
• Low Intro/Promotional Rate
• No Annual Fee
• Rewards (gas, travel, cash-back, etc.)
• Secured (deposit required)
• Business
• Student
• Pre-paid/Gift Cards
• Smart Cards

DON’T Apply for Too Many Cards at Once
I don’t recommend applying for multiple credit card accounts at once, even if you get multiple offers with very low interest rates. Opening up too many accounts at once can actually hurt your credit score for two reasons.

For starters, the length of your credit history is one factor (approximately 15%) used in determining your FICO® credit score. Generally speaking, the longer you have been managing credit, the more positive that influences your score. So if you open several new accounts at the same time, the average age of your accounts will decrease and possibly lower your score. (Source: MyFICO.com)

Additionally, you don’t want to have too many inquiries on your credit report. When you apply for credit, a “hard” inquiry is generated. Even though inquiries account for just 10% of your FICO® credit score, my personal experience has found that it's not uncommon for a single inquiry to result in a double-digit drop in your score.

Although this “hard” inquiry stays on your credit report for two years, the good news is that a “hard” inquiry only counts against you for the first 12 months. After one year, that inquiry is no longer taken into consideration when your FICO® score is calculated. (When you check your own credit report, a “soft” inquiry is generated. “Soft” inquiries have no impact on your credit rating and don’t hurt your score). (Source: MyFICO.com)

DON’T Close Old Accounts Immediately
Some people mistakenly believe that getting rid of their credit cards will improve their credit. Therefore, they immediately close certain accounts once they pay them off, or when they complete a balance transfer. But doing so is a mistake that could hurt your credit score in two ways.

First, if you cancel existing accounts, you don’t get the full benefit of having those older accounts get counted in the “average age” of your accounts. And remember, a longer credit history is viewed more favorably.

Also, if you close a credit card account, especially one that now has a zero balance after you’ve done a balance transfer, you can inadvertently impact your credit utilization rate. With less credit available, your credit usage ratio will increase, lowering your credit score.

So even if you do a balance transfer, it’s generally best to keep open an older account that has a long credit history open. If for some reason you simply don’t want the card any more – perhaps it has a high annual fee – just keep the account open for a while after you complete the balance transfer. Later, you can close it, after you’ve had the new credit card account for a year or so.