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Balance Transfers Can Improve Your Credit Score

Balance Transfers Can Improve Your Credit Score

0% APR Transfer Cards

If you see an offer for 0% APR on all balance transfers, you should definitely consider how it could help you, especially if you have more than two cards. Offers like this can allow you to consolidate your credit card debt into one account usually at a much lower rate, like 0%. This gives you the opportunity to pay down your accumulative totals, hopefully in a much more efficient manner. These offers are almost always introductory, which means that your rate is variable and will change, typically after a period like 6, 9, or 12 months. However, if you budget properly, you can overpay your minimum to get rid of these balances much more quickly than you would be able to paying them separately.

Reduce Your Rates, Payments, Fees

Obviously, if you take advantage of these offers, transferring your balance can reduce your interests, sometimes drastically. What you might not realize is that while you were paying two, three, or four balances with your old credit cards, you were also susceptible to multiple fees if you couldn’t make your payments. By consolidating your credits to one account you also reduce the likelihood of getting a fee, and if you do it will be one that is more manageable. Also, since you only have to make one payment a month, instead of many, it is much easier to budget. Rather than have to figure out four or more payments, all at different parts of the month, you only have to deal with one.

Credit Card Reform

One of the most important credit card reform acts recently was passed by congress. Perhaps the most significant aspect of it is the regulation on interest rate payments. If you aren’t aware, your credit card has separate interest rates for purchases, cash advances, and balance transfers. Typically, cash advances are very high, followed by purchases, and then transfers. When you make a payment, they used to apply it towards your balance with the lowest interest rate, keeping your high interest rates active as long as possible. The new reform laws force credit card companies to apply your payments to your highest rates first, which can save you hundreds, if not thousands of dollars, over the course of your account.

What is Liability?

Liability, basically, is risk. The more credit you use, the more of a risk you become to lenders. While this certainly applies to your debits, it also applies to your credit limits. When considering balance transfer or consolidation you need to keep in mind that just because you are cleaning house, so to speak, on your accounts, doesn’t mean that you should close them. When you remove the liability on these accounts, you free yourself to use more credit. If you then shut down your old account, it reduces your ability to use credit, which strangely enough makes you appear more liable than if you were to leave it open.

How This Improves Your Credit Score

While the simple act of consolidating your balances does not, in itself, improve your credit score, it begins to create more opportunities for you to actively do so yourself. For the most part, credit companies and the credit bureaus determine your credit score using information based on your payment history. There are other factors, but these are the most important. They track not only your ability to make your payments on time, but how much you pay and how long you have been consistent. The more consistently you pay, the better you appear. In fact, the more effort you make towards paying down your balance, the more attractive you become to credit issuers.

Aside from your activity, they also judge you based on the amount of credit you have available versus the amount you have used. The bigger the gap, the less of a liability you are, and therefore the better your score. The smaller your ratio, the more closely they watch you. It is somewhat ironic, but the less credit you use, the more companies are willing to give you.

Balance Transfer Credit Cards

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