How Credit Card Balance Transfers Can Affect Your Credit Score

Transferring balance from a high interest credit card to a new lower interest card can definitely save you money on interest, if nothing else at least until the introductory rate ends (if applicable). We all receive those infamous credit card offers in the mail, urging us to apply for a new card and transfer our high interest balance over, in order to take advantage of the lower interest rate that this new card has to offer.

This seems like a logical thing to do, right? I mean, lower interest rates on your credit accounts equals more money in your pocket, true? Yes, transferring your credit card balance from a high interest credit account to a lower one is an excellent way to save money on interest, especially if you carry a lot of debt on your credit card(s).

But how does this affect your credit rating and credit score? The answer to that question really depends on your situation, and how you go about it.

A closer look

Lets say you have $5,000 in debt on a credit card account from “ABC Credit Services”, which has a total credit line of $10,000. For this example, lets just say this is currently your only open credit card account. Since your debt takes up half of your total credit line, this would put your percentage of debt compared to your credit line, for this account, at 50%. We’ll call this your “debt percentage”.

You’re making payments to ABC with no problems and you seem happy with the account and the interest rate. That is, until one day you check your mail, and there it is, a credit card offer from “XYZ Credit Services” with a fixed interest rate set at half of what you’re paying now with ABC! Suddenly dollar signs start popping up in your head, and you start trying to figure out how much money you could save by transferring your $5,000 balance to XYZ. You then decide you’re going to apply for the account at XYZ. Your credit is good right? No problem! You receive the card in a week or so, and go ahead with the balance transfer.

So how does this affect my credit score?

How this balance transfer affects your credit rating and credit score really depends on what you do from this point on, and also what your credit line is on your new card from “XYZ”. If your credit line on your new card is lower than that of the original “ABC” credit account, then your “debt percentage” will be higher, which generally will lower your credit score. This would be true if you closed the original account at ABC, and kept your new account as your only open credit card account.

If you’ve had your “ABC” credit card for a while (maybe 2 years or more), and you have a good payment history with them, then it will most likely be in your best interest to keep that account open, even if you don’t use it. Especially if your credit line with your new lower interest card is below $10,000. Usually for the sake of your credit score, you don’t want to increase your “debt percentage”, you want to decrease it.

For example, if you keep both accounts open, you will have a total credit line of $20,000. With your $5,000 in debt on your new card, and your original account at ABC having no balance, your debt percentage would only be 25%, which is a good percentage and your credit score will reflect that.

Now reverse that and say that you closed your credit account from “ABC”, given that your credit line at “XYZ” stays the same, you would have a debt percentage of 50%, which is what you started out with in the beginning. Add to that a newly acquired credit card with little or no payment history on it, and you’re credit score would almost surely decrease, at least until you establish a longer payment history on your new account.

So for this example, it would probably be best to keep both accounts open. Your lower debt percentage could possibly offset the hit your score took from obtaining your new credit card. And looking to the future, it should look better on your credit report this way too.

Avoid increasing your debt percentage

When trying to keep your credit score as high as possible, try to avoid doing anything to increase your debt percentage. Even though the amount of debt you are carrying on your “revolving credit” is the same, it will always look better if you’re using 25% of your total credit, compared to using up 50% of it.

But don’t try too hard to decrease it either

Be sure not to take it too far by applying for more credit than you need, just because you think it will help your credit score by having an even lower debt percentage. Obtaining any new credit will generally bring down your credit score slightly, at least for a short period of time. Applying for credit too much and too often will almost always have a negative impact on your credit score, which is exactly what you don’t want. Your time would be better spent on trying to pay down this debt instead.

As with anything, being informed is the key

Balance transfers such as this can and will save you money on interest, if you do it right. Stay informed about how things like this affect your credit, and you should be just fine!

Of all the things you can do to resolve your excessive credit card debt, the first thing to do is to stop creating more. I’ve seen more than one person get out of debt briefly, only to fall back into it. Start changing those habits. Regardless of how quickly you change your habits, though, if you have the debt, you want to knock it down. Here are some suggestions.

Excessive Credit Card Debt Can Be Discounted

You may be able to settle debts for a discount. When I collected debts for a living, we often took 50% as payment in full, when we thought it was the best we could do. The point is that if you really can’t handle your payments, you may be better off to borrow from family to settle your debts for 20% to 60% of face value. Credit card companies sometimes take 50% or less as payment in full if they are convinced you are headed towards bankruptcy. (Note: this is still possible, but more difficult now with the new bankruptcy laws.)

Send a nice letter explaining your situation, and how you will get the money for the pay-off. Tell them you’ll most likely be filing for bankruptcy, but would like to settle up with any willing creditors before that happens. That let’s them know they may be left with nothing if they say no, and you split your remaining assets between other creditors.

How To Pay Debt Most Efficiently

When trying to dig your way out of debt, always pay high-interest cards first. If, for example, you have $200 budgeted to apply to your cards each month, pay the minimums only on all others, then put the rest of the money towards the card with the highest interest rate. When that one is paid off, work on the next highest.

This powerful technique saves a lot on interest charges. Suppose you have three cards. You would pay the minimum of (let’s assume) $40 on two of them, and apply the other $120 to the highest interest card. When that card is paid off, you continue to put $40 towards one card, and now apply $160 to whichever of the two remaining is the higher interest credit card. It is the fastest way to pay down credit card debt.

Excessive Credit Card Debt – Other Tips

Never buy the credit card insurance. This insurance typically stops your payments when you are injured or unemployed. It’s one of the most over-priced insurances out there, and doesn’t eliminate the debt, but just delays it.

Never buy credit card security insurance. This insurance pays for unauthorized charges when your card is stolen. Since you are only liable for the first $50 if you report the theft in any case, and many cards already have 0 liability, this isn’t needed.

Be careful with consolidation loans. Never consolidate debt into a home refinance unless you have a definite plan for paying the loan off early. 10% isn’t cheaper than 18% when it is for 30 years instead of 5.

If you’ve tried some of these techniques without success, and just can’t seem to do it on your own, consider contacting a credit-counseling service. Sometimes they can help you negotiate lower rates with your banks, and otherwise counsel you on how to reduce your excessive credit card debt.

There are few things in life that can cause as much long term strain and pressure as financial worries. Especially if you have children or a family to support, you will be very aware that failing to keep on top of finances is not an option. Therefore, there are certain steps that you may wish to take to make this job that little bit easier and have fewer things on your mind to stress or worry about. One of these pieces of advice will usually be the repaying of your credit cards.

Credit cards are extremely useful and convenient finance facilities, but as we all know, they can charge very high interest rates and in this sense are a very expensive tool to be using, particularly if you are not paying back your full outstanding balance each month. Therefore, it is advisable that if at all possible, you try to repay your credit cards and keep a zero balance on them. This is however easier said than done. For most people, earning the money to repay the card is not really the problem, it is more that they simply keep using the card and spending the money, even though they have realised that they can no longer afford to be maintaining the outstanding balance.

If you do want to clear your credit cards, one of the first things you should do is set up a direct debit or standing order to pay off a certain amount each month. This way you will always pay your bill on time and will not be subject to administrative penalties or fees for late payment. The amount you set for repayment level should be significantly higher than the minimum required repayment. This is because keeping the payment at the minimum will not pay off the credit card balance very quickly at all. In fact, it may just a servicing level that will pay the interest but make no progress at all towards the outstanding balance.

Once you have set a monthly repayment amount and are satisfied that it is high enough to repay the credit card balance in a reasonable time frame, what you should next need to do is stay strong and discipline your spending. This means refraining from using the card, and perhaps waiting until next month when you have cash to buy something you need or want. It is this discipline that will be the difference between clearing the debt and carrying it into the future. If you find it too difficult, consider leaving the card in a safe place at home or even cutting it.

Remember do not just keep to a minimum payment, this is a sure fire way to get further into debt. By paying an extra 10 each month your total credit card interest will drop substantially. Credit Card Companies set their minimum payment requirements too low, many at just 2%, and too many consumers fall into the trap of thinking minimum payments are adequate.

By taking heed of our advice you will soon find yourself clear of credit card debt.

You probably already get propositioned many times a day as you browse through the Internet for “instant approval credit cards.” Many legitimate companies do offer incentives for you to sign up for an instant approval credit card online. The most convenient of these incentives is the gratification of knowing that with very little hassle you can enroll in a credit card program, no matter what your credit score. However, if you do enroll in an instant approval credit card online, there are some details that you should be aware of.

What You Should Know

First, as with an agreement you sign, it is important that you read the fine print. Make sure you know what you are signing up for when you apply for your instant approval credit card. Before you even fill out any forms, it is important that you determine whether or not a company is actually legitimate or not. Thus, take time to perform ample research online. Check with the Better Business Bureau to make sure that they are registered and have no complaints against them. Do a simple online search for discussion boards that may reference a particular company. Also, make sure that you thoroughly review the terms of the agreement. There may be a hefty interest rate that you will have to pay if you cannot pay off you balance each month. You may even be required to pay fees in exchange for the convenience of having instant access to a credit card.

How the Credit Card Companies Benefit

Companies that offer instant approval credit cards online know that consumers look online for fast return. They want to purchase items and see the results of their work almost instantaneously. For this reason, they have found that offering instant approval credit cards is an ideal way to get clients that like results. The companies benefit from the convenience of offering the instant approval by either imposing annual fees or steep interest rates. If you can pay the entire credit card balance off, then you won’t have a problem with the high rate. The real problem for people occurs when they lock into an instant approval online credit card program and charge a lot of money to the card, but then have no means of paying the balance down in a short amount of time. Thus, they spend a lot of money on high interest rates.

What Not to Do

When enrolling in an instant approval online credit program of any kind, keep in mind that your information is important. Not only too many illegitimate credit card companies sell your information to marketers, but you also run the risk of lowering your credit score with each credit card that you open and close. Therefore, the best method is to invest in only a few credit cards a build customer loyalty with a specific company. You can find the instant credit card approval online relatively simple — just stick with the company so that you build a history.

Credit card companies know that if they offer instant approval credit cards, they are highly likely to get clients quickly. The Internet and related technologies have facilitated the movement of business and information at lightning speeds — literally. If you are enrolling in an instant approval credit card online, the best thing you can do to protect yourself is to do your research about a particular company and then read the fine print carefully. Good luck — and happy spending!

Nearly every individual makes purchases with a credit card at some point or other. But did you know that you can also apply for a business credit card if you have your own business? Business credit cards not only make it easy for you to purchase supplies and services, but they also help to streamline your business and accounting practices — particularly in small businesses, where man-power is limited and purchases can be frequent.

How to Use It

Business credit cards are used just like any other credit card. If you apply to receive a small business credit card, you will be asked what name should appear on the face of the card. Many small business owners will imprint their own names, particularly if they are the primary purchaser. However, if you have an active team of frequent shoppers, you may want to consider either imprinting the company name on the credit card or obtaining a business credit card for each of your team members to use at their discretion.

How Business Credit Cards Can Help You

All businesses are accountable to the government for tax purposes and are accountable to themselves for revenue and expense calculations. In the days when all purchases were made with cash, the accounting departments of large companies had to spend the bulk of their time sorting out wads of receipts and purchase orders. However, when business credit cards hit the market, credit card companies made it possible for accountants to streamline the record-keeping process. Small businesses benefit from using small business credit cards especially well because most small organizations do not have the resources to enlist a team of accountants to sort out purchases. When you enroll in a business credit card program, you will not only receive itemized monthly statements, but some credit card companies even go so far as to categorize your purchases so that you can more easily track spending. How’s that for customer service?

Taxes

Not only will your accounting department appreciate the implementation of the small business credit cards on a continuous basis, but they will be especially appreciative during tax season. While it is still a good idea to retain receipts of purchases in case your small business should ever get audited by the IRS, having a small business credit card will help you efficiently file your taxes. You will be able to effectively pull together spending figures. While many CPA’s debate whether Uncle Sam will accept a simple credit card statement as proof of a business-related purchase, at least you have some sort of evidence of a purchase, even if you have lost a receipt.

Using a business credit card is not only a strategic move for any business, but the cards are also becoming ubiquitous. Especially if you have a small business, rather than have your employees charge their purchases to their own cards or (even worse) pay with cash, consider investing in a small business credit card. Most companies offer low-interest, free business credit cards to businesses with a solid credit history.

In order to build and maintain good credit, you must select, use, and pay on your credit cards, and other loans, wisely. Each step is important. Put them all together and your credit rating should rise. Make bad choices and you might hurt yourself in some surprising ways.

When applying for credit, only sign up for cards youre comfortable using for years to come. Getting into the habit of always signing up for the newest card and transferring your balances from the older ones to the latest with the lowest introductory rate can seem smart if it saves you interest and lowers your monthly payment. The truth is, however, that the credit reporting agencies may not be impressed, especially if you close your older cards. Payment history counts when it comes to your credit rating, so you dont want to close accounts that you have held open for many years. So, if you close your older card when you transfer your balances to the new one, youre really doing your credit score no favors. Avoid this credit rating pitfall by choosing your cards wisely to begin with and sticking to them.

The oldest myth about credit cards is the idea that you should pay off your cards every month to earn an excellent credit rating. Set your own record straight! Credit reporting agencies like Equifax and TransUnion show the most favor to credit card holders who carry small balances on their cards month to month. This proves to the agency that youre comfortable carrying and responsibly managing debt. Cardholders who follow this rule can watch their credit rating rise.

Surely youve also heard that making payments on time is a must. Unlike the old myth above, this rule is tried and true. Paying less than the minimum payment or making your payment late will surely bring your credit score down and may also saddle you with late fees that lead to even higher balances. Always make at least the minimum payment on time to avoid being labeled slow or delinquent. If you do have late payments in your credit history, try to stay current on your new cards for at least two years. The reporting agencies pay the most attention to the recent past, not ancient history so by getting back on track you can help your score go up.

To start building good credit with your credit card, youll need to obtain the card, use it, and make the first payment before youll see any effect on your credit score. You may have to sign up for a secured card in the beginning, which means youll be required to put money into an account controlled by the credit card company in order to obtain the card. In this way, any debt you incur using the card is secured by the funds youve placed in the credit card companys account. Its a way for a creditor to take less risk when dealing with someone who has poor credit or no credit. A secured card is just as good as any other when it comes to building credit, though. Once youve made your first payment on time for at least the minimum required amount to the creditor, you should see your credit score start to rise in the following weeks. If you carry a low balance month to month on the card, your credit should improve markedly assuming you have no other problem credit accounts pulling your score down. Other ways to build credit from scratch can include getting a low limit store card or a gas card just be sure that you can make the payments and stay current.

While many consumers misuse credit cards and make poor decisions about purchases, management, and payment habits, you can see that responsible use of credit cards can actually be beneficial and is nearly mandatory when it comes to building and maintaining a good credit score.

Excessive Bank Account And Credit Card Charges Attacked As Unfair And Possibly Illegal

One missed credit card payment, or going overdrawn without permission, and suddenly a 30 charge can be incurred. Bank charges can seem unfair and too harsh given the frequently tiny amounts of unauthorized borrowing involved. Now it seems that the law could be in agreement.

Following on from an investigation launched in October 2003, eight major credit card companies were told in July 05 by the Office of Fair Trading (OFT) that the charges they levy for late payments were “disproportionately high”, and that charges need to be adjusted to better reflect the costs of managing late payment. Throughout the investigation, the credit card firms continued to maintain that the late payment charges they imposed were fair.

The legality of these charges are being questioned by a Scottish law firm, supported by the Scottish Citizens Advice, who are encouraging consumers to challenge the right of banks to charge such high penalty fees. With current high street credit card typical APRs ranging from 5.9% to 29.9% this is up to 25.4% points above the present 4.5% Bank of England base rate, and banks cutting the interest rates on current and savings accounts, many consumers see the levels of the bank charges as an additional means of revenue generation by the banks through excessive penalization of consumers beyond the actual costs involved.

“The law says if someone breaches their contract, for example you go over your overdraft without permission, the bank is only entitled to recover its actual loss,” Mike Dailly, Principal Solicitor at the Govan Law Centre told BBC Money Box, “If you get an automated letter from your bank for going over your limit, that costs about 50p. So why should someone get a 36 letter for that transaction?”.

In a previous press release, the OFT stated that it, considers that, in a consumer contract, a default charge is likely to be disproportionately high if it is more than a genuine pre-estimate of the damages that the card issuer would win in court if it sued the cardholder for breach of contract.

A representative of the British Banker’s Association told the BBC that the banks were not charging customers more than the actual cost, citing that the charges were to cover additional costs incurred due to a need for human intervention, to extract the item from the day’s work, to research the customer’s recent credit profile, and then a managerial decision as to whether to return the unpaid item.

The Glasgow based Law firm states that, The legality of bank charges has yet to be ruled on by a senior UK court but these will not be enforced if they are found to be ‘penalty’ or ‘unfair’ charges. Until a final ruling is made by the courts, they have drawn up a letter citing both Scottish and English case law along with the regulations which apply throughout the UK to help customers get their charges refunded.

Disclaimer:

All information contained in this article, is for general information purposes only and should not be construed as advice under the Financial Services Act 1986. You are strongly advised to take appropriate professional and legal advice before entering into any binding contracts.

Useful resources:

Credit card rate comparisons ( http://www.moneynet.co.uk/credit-card/index.shtml )

Current and savings account interest rate cuts further information ( http://news.ft.com/cms/s/faed1a82-8e9c-11da-b752-0000779e2340.html )

Millions of people use credit cards all around the world. A huge chunk of those users made mistakes when dealing with their credit cards. The consequence of the errors is costly.

A lot end up in debt and most of the time these are the people who rant about the credit card being the devil. But fact of the matter is, this is not the case. When used properly, credit cards are very good financial tools.

Credit cards are not necessarily just for people who have large sums of money to use. There are some cards even for the financially challenged, and these are called the: Bad Credit Cards.

A bad credit card is just precisely that: a card with a very bad or low credit limit.

There are two types of credit cards: there is the secured and the unsecured credit cards.

Unsecured credit cards are the accounts that are free from the limits of a bank account. The limit of credit is up to the banks discretion and not up to the size of the bank account. If the bank thinks that a person is deserving of a bigger credit, then it will be given.

This is the usual type of credit cards in the market and is fairly popular among the card shopping people. These are also the cards known to be more respected by other companies. These are also the cards known to send people to a very deep debt.

This is the type of credit card that should be avoided if the applicant is already in a financial mess.

The secured credit cards are the bad credit cards. These cards are grounded on the size of the account a person has. For example, if a person has a $1,000 balance, then that is all the credit a person is going to get. If there is a point where the balance reaches $0, then the person should go and re-fill the account.

The bank limits the credit to the money already present to avoid overspending, thus preventing even deeper debt. This will monitor the expenses of the person and will help the development of a financial recovery for some.

These credit cards are also known as pre-paid credit cards for there is only a fixed amount that can be used and the holder is the one who puts it there.

Please use caution when you use a ‘credit’ card on the internet. There are ‘criminal elements’ every-where, and online is no exception. I will actually go as far as to say that you should NEVER use a ‘credit’ card online AT ALL. Hear me out! I have a PayPal account and it can be quite useful for ebay or other places that accept it. To get a PayPal account you need some sort of credit card, right? WRONG! There are two main types of ‘plastic card’, the first is a ‘CREDIT’ card ( potentially very dangerous when used online ). The second card is a ‘DEBIT’ card – very SAFE to use online, if you go about it the right way.

You do not need a credit card to establish a PayPal account. ( or for lots of other online services..) A ‘debit’ card is much, much safer and I will explain why. Firstly, if you use a credit card online and you are unlucky enough to have your card details stolen or intercepted, then ALL the money that is available to that card can be lost – permanently. Can you afford that?? Even if you can afford to lose that money ( lucky you!! ) do you really want to hand it over to a criminal? My guess would be no. So don’t risk it happening! I don’t have a credit card at all, and that is largely irrelevant, but I can purchase things online.

What I use is a VISA enabled DEBIT card instead, and this is how it works. I have two bank accounts, one with all my money in it, the other is nearly always completely EMPTY. The empty account has the VISA debit card attached to it. How does that work if it is empty most of the time? Very easily. The first account has an online banking facility and I simply transfer money into the VISA account whenever I need to use it. I only transfer about ten dollars more than I think I will need to make a purchase, so that if my VISA card details are intercepted or used by any criminal organization, they can’t get at ALL my money.

Yes, online banking has potential risks as well, but with the added layers of security that a bank provides, the risk is much reduced. Also you can directly visit your bank to sort out any problems should they occur, but it is much ( very much ) harder to do that if you are dealing with an online organization that may be based a different country altogether. So, I hope you aren’t using a credit card online. (!?#!!)

Note 1 : The reason I transfer about 10 dollars more than I think I will need for any given transaction is to cover currency conversion variations and un-noticed packaging, postage, or insurance costs. I also like to leave a balance of about 20 dollars to feed my online insurance policy. ( see the paragraph below note 2. )

Note 2 : Most online banking facilities allow an unlimited number of transactions, with no transaction fees. So you can use it as much as you want to and it costs you nothing. Now that’s how much I like to pay!! Don’t forget that in some cases you can do direct bank deposits to make a purchase online. That means even less risk to you because the vendor doesn’t even have the chance to get at your card at all. They only get the money, and that’s just fine by them. If you need to set up recurring payments for a membership or subscription service, the best way is by direct bank deposit. You set it up, you control it, and ‘they’ can’t change what they charge you or add extra charges without you knowing about them

There is a cost involved with having a second bank account and that cost is usually thought of as dead money, but if you look at that monthly ( or annual ) cost as a form of ‘pay as you go’ insurance, then it is a lot more acceptable. What I mean by pay as you go insurance is the charges ( account keeping fees ) for the usually empty second account are your insurance policy against losing the contents of your main account to an online criminal. When you look at it that way, it is really rather cheap. You also get insurance against financial loss from VISA if your card is lost or stolen in the ‘real world’- not that there would be a substantial amount available to that card if you operate it the way I have outlined above. You can use either type of plastic card on the internet, and the vendor of whatever you purchase will never know what type you are using, but I know what type of card I will always use. The debit card.

Footnote : No, I don’t have a ‘credit’ card at all, so without the services of a debit card I wouldn’t be able to purchase much online. But I wouldn’t have a credit card even if I could ‘afford’ one. I personally think that credit cards are just too big a temptation for the average person. If you have thousands of dollars available to be spent as credit, that is just what most people do, they spend it. Why is that a problem? Well if you don’t have the money to buy whatever you have bought using your credit card, where are you going to find the money to pay that credit back?? Oh, and what about the rude amount of interest that a lot of people end up paying on their credit cards? Sometimes for years.. I may be old fashioned in this regard, but saving your money by having a budget, and buying something when you can afford to do so, really does save you a lot of money in the long run.

Most people want to apply for a credit card online and get the best deal available, including a low interest rate, a reliable credit company, and some sort of reward program like a travel credit card offers. The Bank of America credit card is a card you can trust. They are available online at http://www.bankofamerica.com, and one of the most popular travel credit card they offer is the Bank of America MilesEdge card.

This card offers a great value for a low interest rate and the best rewards you can get in travel credit card. Plus, with the Bank of America website, you can apply for a credit card online and receive it within a matter of days.

Features:

Every Bank of America credit card offers great features, including the following:

Great security and protection in the form of fraud protection. When someone uses your card to make an unusual purchase, you will not be held responsible for unauthorized charges. In addition, if any of your purchases are stolen or lost and you used the Bank of America credit card to buy them, you can report the loss within ninety days and get refunded for the purchase price charged to your travel credit card.

Online banking services at the Bank of America website ensure that using your MilesEdge card will be convenient and hassle free. You get online bill paying and viewing so that you never have to wonder what will appear on your bill this month, what interest you are being charged, or what charges have been paid for in previous months. You can check your balance and your amount due at any time. You will also receive online customer service and ways to manage your account. And if you apply for a credit card online, you can set all this up when you finish with your application.

The Bank of America customer service is another great feature. When you use your travel credit card anywhere in the world, you are assured that it will be accepted wherever you go. And no matter where you are, customer service is available to you twenty four hours a day, seven days a week. The professionals on the customer service line are there to protect you from credit card fraud and from day to day inconvenience.

Automatic payments are a great feature for many credit card users who do not want the hassle of a monthly paper bill. Each month, your payment is automatically deducted from the account that you choose, either your standard checking account or other business account. No need for stamps or handwritten checks. Plus you do not need to worry about the possibility of late payments and the fees that go along with them. If set up automatic payments for multiple credit cards, you can view your account activities all on one statement.

When youre on the go and away from home, especially if youre in a foreign country, having cash is a necessity. But if youre short on funds, you can rely on your MilesEdge travel credit card from Bank of America to give you cash at ATMs worldwide.