Take the next step to getting your debt paid off
A balance transfer credit card can be an essential tool for paying down debt, if you can qualify for a card with a competitive introductory rate. A balance transfer credit card is a card that comes with a temporary period of low or no interest, so that you can transfer existing debts and get ahead on your payments.
Compare balance transfer credit cards
If you have poor or little credit history, your choices might be limited when it comes to qualifying for a balance transfer credit card. You probably won’t be offered the same benefits that someone with excellent credit might receive; so you will want to compare length of the introductory period, the introductory interest rate, the revert interest rate (what the interest rate bumps up to when the intro period is over), the balance transfer fee, and the maximum transfer limit.
- If the provider quotes a different rate to the one above please let us know
Maximize your likelihood of getting approved for a balance transfer credit card
When you’re looking to get a balance transfer credit card fast, the first factor that comes to mind is your credit score. With impeccable credit, it’s easier to get a card — and get it fast. For those of us whose credit is less than perfect, however, there are still options.
If you don’t have time to build your credit, you can keep your eye out for a few key offerings. Lenders who accept poor or no credit history are a top way to bump up your chances of being approved.
Top 4 balance transfer eligibility factors
1. Credit history and score.
Your credit habits and history provide a record that allows credit issuers to see how you’d be as a potential lending candidate. Are you someone with a long credit history? Do you typically make payments on time? Have loans in default? The answers to these questions indicate to creditors how you will behave as a future borrower.
What qualifies as good credit?
Credit score ranges and ratings according to finder.com
The better your score and repayment habits, the less risky a company will see you — and the more money they will be willing to lend. Also, higher credit scores generally mean that your credit limit will be higher and your interest rate lower.
2. Amount and type of debt.
The balances you owe on other accounts is another hard number credit issuers consider. If you carry large balances, it may be critical for you to have a good score to be eligible for the transfer. These factors work together to “prove your case” to the lender — to show that you will be able to pay off your debt balance.
The type of debt you have is another indicator of your ability to use credit responsibly. A student loan or home equity line with low payments and low interest that you consistently pay on time offers a stronger case for your reliability than three store credit cards with maxed-out limits. While carrying different types of debt won’t prevent you from being approved for a balance transfer, it’s another reflection of your spending habits.
3. Debt-to-income ratio
This ratio is two numbers — the total amount you owe and the total amount you make — compared to give an indication of how significant your debt is. A credit issuer will compare those two numbers to gauge your ability to repay the money you’ve borrowed and whether you can handle borrowing any more.
Debt/Income = Debt-to-income ratio
For example, it you owe payments of $1,100 every month and your monthly income is $4,000, your debt-to-income ratio is $1,100 divided by $4,000 — that’s 0.275 or 27.5%. So about a third of your income goes toward your debts.
DEBT-TO-INCOME RATIO LEVELS
- Under 15% Good
- 15%–20% Caution
- Over 20% Danger
A 27.5% debt-to-income ratio tends to be in the danger zone of debt levels.
It may appear that income is covered in the debt-to-income ratio, but it’s a significant factor on its own. For example, you may not have a large debt balance, but you could still be in a tight spot if your income is lower and your interest payments are high relative to your income.
This factor also indicates to a potential creditor how well you will manage to repay your debt with your new balance transfer credit card.
Will getting another card mean a lower credit score?
If you’re in a hurry to get a balance transferred out of a bad loan, it usually means that you don’t want to suffer a blow to your credit. The best way to build your credit score is by sending those bill payments on time and at least at the minimum amount.
If you open a balance transfer credit card, you want to be careful about what transferring your debts might do to your credit utilization rate. Your credit utilization rate is how much credit you have versus how much you’re using. Or, more technically, the amount of outstanding balances on your cards divided by the sum of each card’s limit.
Let’s say you have a total credit limit of $1,000 and a total balance of $500. To determine your credit utilization rate, you’d divide your total balance — or $500 — by your total credit limit of $1,000. Doing so results in a credit utilization rate of 50%.
When you open up a balance transfer card, your credit utilization rate goes down on that card. Here’s how:
- You have a $500 balance on your current card. This card has a $1,000 credit limit. Right now, your credit utilization rate is 50%.
- Now you transfer that $500 balance to another card with a $2,000 credit limit, which brings your credit utilization rate down to 25% (500 divided by 2,000).
However, if your new balance transfer credit card has a maximum limit of, for example, $2000, and you transfer $2000 worth of debt onto it, your credit utilization rate on your new card is now 100%.
As a rule of thumb, creditors like to see a credit utilization rate of 30% or less — you can see how you’ll need to consider both of your credit utilization situations – on your old card and your new card – to understand how it affects your score.
Further, a new credit card will reduce the average age of your credit accounts, and around 15% of your credit score depends on credit age.
If you do your research, make a plan and base future choices on your best judgment, a balance transfer card could be the first step toward financial freedom.
Learn how to get your credit score.