What a Credit Card Balance Transfer Does to Your Credit Score

Pros and Cons of Credit Card Balance Transfer Offers

Most of us get several unsolicited letters each week from companies that issue credit cards with enticing incentives, such as zero-percent credit card balance-transfer offers for a fixed amount of time. Since even the best credit cards often charge high interest rates, it's tempting to take advantage of the balance transfer offer, since you could save a great deal of money. If you have a good credit score and credit history, you're very likely to be approved for the new credit card. You can use the credit card balance transfer to move your unsecured debt from high-interest credit cards to the new one.

Advantages of credit card balance transfer offers

• Smart money management. If you're certain that you'll be able to pay off the credit card balance transfer before the end of the grace period, this can be a good idea; you can save hundreds of dollars on interest charges.
  
  
• Freed-up money that can be used elsewhere. The money you save on interest can be allocated to other areas of your finances that can save you money, such as applying the savings to the principal on a home loan.

Disadvantages of credit card balance transfer offers

• Hidden fees. Credit card balance transfers usually charge transfer fees up to 3% of the balance and often have other hidden fees in the fine print, including annual fees, missed payment fees, documentation fees and other miscellaneous charges.
  
  
• Spending money on your new card. Avoid using the new credit card for anything other than paying off the transferred balance. The importance of this cannot be overstated. If you make any new charges on the card, any payments you make are applied to the transferred balance first; you'll be paying a high rate of interest on any new charges, which will continue until the balance transfer is paid in full.
  
  
• Hits to your credit score. If you apply for too many credit card balance transfers in a short period of time, credit bureaus usually regard this as risky behavior. Your credit score can suffer as a result.
  
  
• Late-payment penalties. If you're late with a payment for any reason at all, this destroys any benefits of your credit card balance transfer. You'll be hit with a late fee, your interest rate on the transferred balance will go sky-high, and that interest rate can often be applied to the balance from the day that the credit card was issued.

If you're certain that you'll have the money to pay off the credit card balance transfer by the time the grace period ends, balance-transfer offers can be a smart way to manage your unsecured credit card debt and save some money. However, the credit card issuers that market these offers often use them to take advantage of people with poor credit histories, gambling that these people won't understand the possible liabilities.

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