Seven Things You Should Know About Balance Transfer Credit Cards

Balance transfer credit cards are a great way to reduce your credit card debt, but only when you transfer balances to a credit card with a lower interest rate. If you’re looking at a sweet balance transfer deal, get some facts about balance transfer credit cards before you apply for the credit card. Balance transfer cards can be tricky so it’s best to know the facts beforehand.

1. Introductory rates must last at least six months. A credit card law that went into effect in 2009 specifies that any promotional rate must last at least six months. That means you get at least six months to take advantage of your lower rate before your interest rate increases.

2. You can lose your promo rate if you’re late. The law does allow your credit card issuer to take away your promotional rate if you’re more than 60 days late on your credit card balance. Not only will you lose the benefit of your balance transfer, you’ll also pay a late fee and suffer a loss to your credit score.

3. Transferring a balance could hurt your credit score. Since 30% of your credit score is based on your credit card balances, piling too many balances on one credit card can hurt your credit. Anytime your credit card balance rises above 30% of the credit limit (that’s $300 on a card with a $1,000 limit), your credit score takes a hit. Transfer to credit cards with a high limit to lessen the effect to your credit.

4. You’ll pay a fee for transferring a balance. Fee-free balance transfer credit cards are hard to find. And those without a transfer fee usually have a higher introductory interest rate, if they have one at all. The balance transfer fee is most often 3% of the balance transferred, but usually ranges from 2% to 5%. There may be a minimum balance transfer fee, like $10. The balance transfer fee increases the cost of your transfer, and could negate your interest rate savings if the fee is too high.

5. The transfer may not be instant. Though the transfer process happens electronically, it could take two or three billing cycles for your balance transfer to be complete. In the meantime, you must make sure you continue to make payments on the old credit card. Otherwise, you’ll be charged a late fee and suffer a hit to your credit score.

6. You’ll need excellent credit to qualify. These days, credit card issuers are very choosy about who they give balance transfer credit cards to. If you don’t have an excellent credit score – something in the 700s – you probably won’t get approved for a balance transfer credit card with a good interest rate offer. If you don’t have a great credit score, save yourself the extra credit report inquiries and improve your credit score before applying.

7. Minimum payments may not reduce your balance transfer balance. The law says that only payments above the minimum must be applied to the lowest rate balances. Otherwise, your credit card issuer chooses how to distribute your payment. When you have multiple interest rate balances, your minimum payment most often goes toward purchases first. You can avoid this by transferring to a credit card with no other balances and avoid making purchases on your balance transfer credit card.