Having bad credit can affect your life in a number of ways. You could be turned down for a job, refused entry into a club or professional organization, or denied a new car insurance policy if your credit isn’t good enough. There are many strategies for rebuilding your credit. One method involves using balance transfer credit cards.
Balance transfer credit cards became popular before the economic crisis. People with high interest cards would transfer a balance to a new card with a low introductory rate, then pay off the balance before the standard APR kicked in. This is a very successful strategy for getting out of credit card debt, but it can also be good for your credit rating.
It helps to understand how lenders look at your credit report. When you open a new revolving credit account, such as a balance transfer credit card, your available credit goes up.
Others who are considering offering you a loan or other credit see that available revolving credit very favorably. It means you have financial reserves, and might be less likely to file a claim on your auto insurance, for example.
When you get a balance transfer credit card, it’s a good idea to keep the old account open for a while. Simply transferring debt between two lenders doesn’t help you build a positive credit rating, but maintaining a good amount of available credit does.
If you’re using balance transfer credit cards to help you pay off your credit card debt, that will also help your credit rating. By making regular payments on time, you are demonstrating fiscal responsibility. This goes a long way toward rebuilding your credit.
As you pay down that balance on the new card, you will also be opening up more available credit. As you make progress on the balance transfer, you may want to consider closing the old account. This is especially true if the card has an annual fee, or if the lender charges inactivity fees. In the end, you don’t want all that money you saved on the balance transfer getting eaten up by fees.
When you get ready to choose a balance transfer credit card, make a plan to pay it off during the introductory period. Beware of fees and retroactive interest that may be charged if you don’t pay it off on time.
To see how much you could save, calculate how long it would take you to pay off your current card. Then use a balance transfer calculator to see how much you could save.
