Credit Card Balance Transfer Guide

A frequent mistake by many credit card holders is to run up a balance, which for one reason or another simply can’t be paid back in one go, so it starts incurring interest. And those interest payments can be crippling.

It’s no wonder the British public have been playing ‘hot potato’ with their credit cards; swapping balances here, there and everywhere. But this has its advantages and disadvantages.

Here’s a short guide to balance transfers.

Running up that bill

It’s very easy to run up a balance that sits like a lead weight on the statement every month. As soon as it’s there even the smallest change in interest rate could make quite a difference to your monthly outgoings.

So shop around!

Be brave, be bolshy!

If you have a fairly large balance and you’re feeling brave, it’s worth phoning the credit card company. When you get through, instead of dealing with the person at the call centre, ask to speak to somebody in the department who sets the interest rates.

All these companies are interested in getting your business and somebody, somewhere sets the rates they offer. Play one company off against another. Tell them what other companies have offered you and ask the question: can you go lower?

The chances are they probably will.

Choosing a credit card

Given that you are going to be getting your new credit card account with an opening balance on it you should probably go for the one offering the cheapest APR. That is not necessarily the one offering zero percent incentive for a few months. You need to be aware of what the APR will revert to when the offer period ends. If you decide to change to another credit card company at that time you may get a transfer fee levied at you and it can affect your credit rating if you change credit cards a lot.

It’s certainly not worth going with a credit card that charges you an annual fee – Why pay them twice! There are plenty of cards that don’t charge out there.

New doesn’t always mean better

Remember the golden rule, when you get that new card, don’t use it for anything else.

The chances are that if you do use it then on your next statement you will get two sets of interest and that second interest figure will be at a much higher rate than for the balance transfer. You’ve no excuse for being surprised, as it will all have been itemised in the small print of the terms and conditions…

Money down the drain

So as you pay your monthly fee into the account it will be deducted from the part of the account that is paying the least interest, not from the transaction that was incurred most recently. In which case, all your hard work researching and selecting the card in the first instance would have been wasted by a single slip up.

If you think you might be tempted like this, the answer is to leave your new card in a drawer where it’s out of harms way!

Credit, credit, credit: your rating

Frequently swapping your balance around from one credit card company to another can sometimes adversely affect your credit rating. Your credit rating is the information the lender companies use to decide how much credit they are going to give you.

The one who cannot be named

If every time you change cards you regularly clear the balance within the interest free period then the lending companies will start to see the game you are playing and can refuse to give you credit.

This is then reflected on your credit rating which means that other companies are even less likely to loan you money. From that point on it can be a downward spiral into credit rating hell.

Refuse me?!

In the UK there are two major credit checking companies that lenders use to check your credit worthiness. These are Experian and Equifax. Both these companies hold your credit history and you are entitled to see that information.

Stand and deliver

If you are refused a credit card it will be worth contacting the lender within twenty eight days of being refused to find out which of the two above agencies were used to provide your credit history.

Remember that you will have been refused credit by the company you approached for the credit card, not by Experian or Equifax; however, talking to them will allow you to see what’s on your record and then get an idea of why you were refused credit. In some circumstances you might even be able to reverse the decision.

Get out while you’re ahead

Assuming you did get the credit card you wanted and you have been given a good long introductory offer with low interest on the outstanding balance, how do you make the most of it?

The answer is simply to keep a record somewhere of when the offer expires. If you keep a diary, scribble it in there, or in your palm pilot, or in your desktop organiser – it doesn’t matter where, just keep a note somewhere obvious.

Have we been here before?

With the end of the introductory period written down you can then make an informed choice of whether to transfer to another card or not. With your new-found understanding of the credit rating system you could get hold of your credit rating and base you decision whether to move or not on that.

Whatever your decision your main aim should always be to prevent your credit card bill becoming overwhelming by accruing huge amounts of compound interest each month.

Tags: small print, balance transfer, opening balance, Credit card, conditions… money