Balance Transfers And Your Credit Score

By Author: Elliot Spalding
Total Articles: 14
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A common method most individuals use to get out of credit card debt is balance transfers. This is when several debts are made one. The goal is to get a better interest rate and to create on single payment that is easy to pay. What is not realized is the effect of credit card debt consolidation on your credit score. Also, if balance transfer actually work.

Your credit score takes into account your utilization which is found by dividing your total amount due by your credit limit. This is analyzed across all your accounts and on an account by account basis. The effect of balances transfers will not change your total utilization, but your specific account utilization will be hurt. The account that now has the sum of your balances will also have a rather high utilization. This is has the potential of lowering your credit score.

Another consideration is that balance transfers for the majority of time do not work. Individuals feel like they have made some head way on their debts, but truly are just running in place. The debt on the other cards is then added back creating several new debt and a card that ...
... carries all your old debts. This cycle and without control balances transfers will not work. Also, this common pitfall further drags down the credit score. The total utilization is now on the rise and it is now even more difficult to maintain an acceptable level.

Another consideration of balance transfers is how long the offer for a lower rate is. These usually come with a very low rate or even a zero percent interest rate for the first year. If the debts you carry are large a year might not provide you enough time to pay off the debt. An even scarier prospect is if you make a late payment to any of your accounts. The card that has the balance transfers often has the right to raise your interest rate if you make a late payment to any of your accounts.

In regards to your credit score, it would be better to keep the debt spread across several cards. This will keep your individual account utilization low. Then you can use the discipline to slowly pay down these debts.

Balance transfers can work, but you need to be aware of the common pitfalls. And to pay off any debts you need to have a plan and a budget.
To read more about what is a good credit score, visit Credit Score Insight. There you will find more in-depth ways to get an excellent credit score