How a Balance Transfer Could Lower a FICO Score: Interest-Free Credit Card Transfer without Hurting Your Credit Score

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Consumer debt has risen sharply over the past decade. The Nilson Report showed that the median credit card debt stood at $10,679 at the end of 2016. Not surprisingly, this has led many U.S. consumers to turn to interest-free credit card transfers in order to reduce any outstanding personal debt.

A balance transfer performed incorrectly could damage a FICO score and make other borrowing sources, such as home equity loans, less affordable. It is important to establish the correct approach to reduce interest payments on credit card debt in order to protect a personal credit score.

What Does an Interest-Free Credit Card Transfer Involve?

After using a comparison site to trawl the market, select the best credit card deal. An interest-free credit card transfer or a transfer at a low rate for the life of the balance is most preferable. Select the right card, provide all the requested information, enter the balance transfer details and the FICO score will be checked by the lender. The new card provider will carry out the balance transfer. It will take a few weeks to take place and most lenders charge a transfer fee of approximately 3%.

How Not Making Interest Payments Helps to Clear Credit Card Debt

A consumer has $10,000 of credit card debt at 15% APR. An interest-free credit card transfer fee of $300 will be added to the amount owed. However, after a period of 12 months, the balance transfer will help save $1,200 in further interest payments. This gives a consumer the opportunity to reduce personal debt.

Why Does a Balance Transfer Reduce a FICO Score?

  • Each credit search is recorded and will cause a credit score to go down slightly.
  • A balance transfer from a card with a high credit limit to one with a low limit will negatively affect a FICO score. Provided that the consumer pays-down the level of credit card debt, a FICO score will recover within a few months.

Interest Free Credit Card Transfers May Soon End

President Obama changed the law with regard to the application of card fees and charges. Credit card debt is no longer the cash cow it once was which means that balance transfer deals will shortly become fewer in number. Providers have traditionally banked on the fact that they were able to apply fees and charges to client balances for making late payment. They have enjoyed the complete freedom to increase the rate of APR on a balance at any time. Neither of these will be possible from February 2018.

* Legal changes were introduced by the Credit Card Accountability, Responsibility and Disclosure Act.

It is sensible to take advantage of interest-free credit card transfer whilst they are still available to consumers. Always pay-down the debt if transferring from a card with a high to a low credit limit in order to ensure that a FICO score isn’t negatively affected. Balance transfers normally involve a fee of 3% which will increase the level of personal debt in the short term.