Credit Card Balance Transfer: If credit card interest is heavy, balance transfer can provide relief from costly interest. Keep in mind that processing fees, new purchases and the condition of the old card can affect your CIBIL score.
Credit Card Balance Transfer Good or Bad: Is your credit card bill increasing every month and are you feeling stressed seeing the interest? If yes, then the balance transfer option can be helpful and easy. Banks often offer zero percent or very low interest for a few months. It sounds great, but is it always the right choice? Should I transfer balance from credit card or not? Let us understand in simple language…
What is credit card balance transfer?
In simple words, balance transfer means transferring the money from your old credit card, on which the interest is high, to another card or low-cost loan. The new card or loan gives you lower interest and you repay it in installments. The bank clears the balance of the old card, but now the payment has to be made as per the terms of the new card or loan.
How beneficial is credit card balance transfer?
The biggest advantage is that you can avoid expensive interest. Plus, if you have multiple cards or different balances, you can merge them all into one place. With only one date and one payment per month, payments become simple and easy to track.
What are the disadvantages of credit card balance transfer?
- There are processing fees and hidden charges, which are often in the form of 1-3% or a flat fee.
- Sometimes the offers give 0% interest only on the transferred balance.
- Interest is then charged on new purchases at the normal card rate.
- If you do not repay the entire balance, the new interest burden may increase.
- Opening a new card can also have a slight impact on the score, as the bank conducts hard inquiries.
- If you use the entire limit of the new card, credit utilization will increase and the CIBIL score may fall.
- Immediately closing the old card can also be harmful, as it reduces your accounts edge.
Does credit card balance transfer affect CIBIL score?
After balance transfer, your score may be affected in many places. First of all, credit utilization i.e. how much balance is against the card limit. It is best to keep it around 30%. Opening a new card leads to a hard inquiry, which can reduce your score slightly. If the old card is closed then the average age will reduce and the biggest factor is the payment history. If payment is not made on time after the transfer, the credit score will be immediately affected.
What to keep in mind while transferring credit card balance?
- Before transferring the balance, calculate the total interest by looking at the promo rate and period.
- It is important to factor in processing fees, prepayment penalties and hidden charges.
- After getting a new card, do not close the old card immediately, but keep it in less use.
- Maintain restraint on new purchases so that credit utilization does not increase. To avoid missing bills, set up auto-payment.
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