Balance transfer options for lower credit scores

Rebuilding your credit can seem daunting, but it doesn’t have to be. If you’re feeling trapped, you’re not alone. Many Brits with poor or no credit are looking for solutions to improve their financial health.

Balance transfer credit cards let you move your existing debt onto a new credit card and benefit from an introductory low or 0% interest rate. For that introductory period, more (if not all) of your monthly payment will go towards clearing debt, rather than towards interest charges.

Balance transfer cards can offer 0% periods that last over two years, but sadly the longest deals are reserved for people with good credit scores. The good news is that there are balance transfer deals out there for those with less than perfect credit scores, even if they are more of a rare breed.

Compare balance transfer credit cards for bad credit

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Name	Product	Balance transfers	Balance transfer fee	Purchases	Annual/monthly fees	Rep. APR		Incentive	Representative example
Barclaycard Platinum 18 Month Balance Transfer Visa		0% for 18 months reverting to 24.9%	2.99%	0% for 3 months reverting to 24.9%	£0	24.9% (variable)	More Info		Representative example: When you spend £1,200 at a purchase rate of 24.9% (variable) p.a., your representative rate is 24.9% APR (variable).	Compare	loading Fetching your data...
Fluid Mastercard		0% for 9 months reverting to 29.94%	4% for 9 months reverting to 5%	29.94%	£0	29.9% (variable)	More Info		Representative example: When you spend £1,200 at a purchase rate of 29.94% (variable) p.a., your representative rate is 29.9% APR (variable).	Compare	loading Fetching your data...
Post Office Money Classic Credit Card		0% for 18 months months reverting to 34.9%	2.9%	0% for 12 months reverting to 34.9%	£0	34.9% (variable)	More Info		Representative example: When you spend £1,200 at a purchase rate of 34.9%% (variable) p.a., your representative rate is 34.9% APR (variable).	Compare	loading Fetching your data...

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How does a balance transfer card for bad credit work?

If you have a large outstanding debt that’s incurring a high rate of interest, paying the minimum monthly repayments won’t make much of a dent. Even if you aim to pay more, a sizeable part of your repayment will go towards interest.

Balance transfer cards temporarily lower your interest rate so you can make a dent in your debt. In an ideal world, you’d want to clear the balance before any introductory low or 0% interest period expires. When the introductory rate expires, any outstanding balance starts accruing interest at the much higher “standard” rate. If you know that you won’t fully clear your balance before any introductory offers expire, then the revert rate should be an important factor in choosing a card.

Crucially, transferring a balance usually involves a fee – referred to as the “balance transfer fee”. These are generally worth shouldering to get to the low rates, but it’s important to factor this fee into your comparison. Since the fee is usually a percentage of the balance to be transferred, the larger your existing card debt, the more significant the transfer fee.

Provided you make all payments on time, the card issuer will report this back to credit reference agencies, which is likely to benefit your credit score.

Am I eligible for a balance transfer card?

Realistically, if you have a low or poor credit score, it can be difficult to get approved for a balance transfer card. The higher your credit score, the more options you have, and the longer the interest-free periods offered to you. However, there are cards and card issuers that specifically focus on those with lower credit scores.

Once you’ve found a card issuer that considers applications from less-than-perfect credit scores (see our comparison table, above), you should look to see if it offers an “eligibility checker” facility. This will give you a clear indication as to your likelihood of getting approved, what level of credit limit you might expect and what sort of interest deal you’d be offered (some issuers might be willing to offer you the card, but with a shorter 0% period than advertised). It won’t affect your credit score because it involves a “soft” search of your credit file.

A soft search is different to an application for credit – where lenders will run a full, “hard” search of your credit file. A hard credit search usually has a small (and typically short-lived) negative effect on your credit score. For this reason, you shouldn’t make multiple applications for cards in a short space of time.

Most card issuers now offer an eligibility checking tool on their website, but refer to it by other names. However a lender refers to this facility, make sure it includes a disclaimer somewhere on the page stating that using it won’t have an impact on your credit score. You’ll need to enter a few basic bits of information, such as your name, date of birth and address details for the last three years.

Don’t forget that credit scores aren’t the only factor that lenders base their decisions on. Minimum requirements vary from lender to lender, and some will quote a minimum income. Most importantly, a responsible lender should strive to make sure that any credit offered is affordable for the borrower.

How to compare balance transfer offers

Once you’ve checked your eligibility, you should be in a better position to know which balance transfer deals are available to you. If you’re lucky enough to have plenty of options, here are some factors you can use to compare offers:

• Balance transfer fees. Most balance transfer cards come with transfer fees between 1.5% and 4% of the amount you transfer.
• Length (and rate) of balance transfer offer. Low or 0% offers are only for a certain amount of time and then the interest reverts to the card’s standard rate.
• Standard interest rates. After any introductory rates are over, the standards rates will apply.
• Transfer limits. Credit limits are generally tailored to the individual, and you’re allowed to use a specified percentage of that amount (normally around 90%) for your balance transfer. For example, you might be offered a credit limit of £2,000, and the cards balance transfer limit might be 90% of your credit, i.e. £1,800.
• Annual fee. These fees are increasingly rare with balance transfer cards, and some providers that do charge one often waive it for the first year.
• Purchase rate. Although balance transfer cards may offer a 0% or low interest rate on balance transfers, there could be a higher rate on purchases (for any new transactions you make on the card).

How a balance transfer can help rebuild your credit

All credit card issuers report borrower activity back to credit reference agencies (CRAs) such as Experian or Equifax. Provided you stick to your repayments, you’ll build up a positive record. At the same time, provided you pay off more than you’re spending and being charged in interest, you’ll also improve your debt-to-income ratio.

Credit cards designed for those who need to build their credit are known as credit builder cards. Credit builders typically have less strict eligibility requirements that most credit cards, but higher rates and lower opening credit limits. In a few cases, these cards can come with balance transfer offers.

Specialist cards such as these can make good “stepping stone” products. The rates are relatively high, but the eligibility criteria are less strict. So they can be a smart way to transition to credit products with better rates.

What types of cards are available to people with bad credit?

Credit builder cards or prepaid cards can help you stick to a budget and encourage you to cut back on expenses. Prepaid cards don’t typically offer a credit facility.

Credit builder cards

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Prepaid cards

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Will getting a balance transfer card affect my credit score?

When you apply for a balance transfer credit card, the lender will run a full credit search. This has a small (and usually short-lived) negative effect on your credit score.

The lender will then report to credit reference agencies (CRAs) information on each repayment you make. Provided you keep up with your repayments and use it responsibly, the card should only benefit your credit score.

Normally you’ll want to close the old credit card as soon as possible (especially if it’s a card with an annual or monthly fee). By closing the card, you might remove any temptation to use it for further spending, and you’ll have one less account to stay on top of.

However, there is an argument for keeping the old account open to benefit your “credit utilisation ratio”.

Your credit utilisation ratio is how much of your available credit you’re using. So if you have a balance of £500 and a credit limit of £1,000, your credit utilisation ratio is 50%. A low credit utilisation ratio is preferable and shows that you’re not maxing-out your credit.

Opening the new credit card could improve your “credit utilisation ratio”, which may have a positive effect on your score, but that’s provided you don’t use either card for additional spending.

Age of credit

A small part of your credit score is determined by the age of your credit. That means that a credit card you’ve had since student days actually looks good on your credit. Opening a new card can lower the average age of your credit.

The lure of a new credit card can bring the urge to overspend. If you open a balance transfer card in the hopes of getting out of debt, make sure you don’t make any new purchases and pay your bill on time.

Never withdraw cash on a credit card as the interest is usually charged immediately (unlike on purchases and balance transfers). Find out more about what is termed a cash advance on your credit card.

Bottom line

Having bad credit can severely hold you back. It can prevent you from buying a home or car (particularly on finance) or taking out a loan to cover a large expense (e.g. a new bathroom suite or boiler).

If you have credit card debt, you’re far from alone. According to The Money Charity, Brits owed a total credit card debt of around £70.35 billion in January 2018, with the average household owing £2,586.

If you’re looking for a better way to manage your debt, you have options. When your credit is low, focus on building your score so you can get a credit card or loan with a more competitive APR. Once you can qualify for a balance transfer card, you’ll save money while paying down your debt.

Frequently asked questions

• What is a balance transfer credit card?

  A balance transfer credit card lets you move the money you owe on an existing credit card to another one to lower your interest rate.

• Are there any fees I should be aware of?

  While each card is different, there’s generally some kind of fee for balance transfers – around 2% to 4% of the transaction amount. Additionally, keep your eyes out for an annual fee and the interest rate after the promotional period ends.

• Are multiple credit card applications a bad idea?

  Yes. Most lenders look unfavourably on multiple credit card applications because it could suggest you are desperate for credit and could be a risk. This is why the “soft” search to check your eligibility for a product is a very smart idea.

• How long does it usually take for balance transfers to post?

  While you could be approved for your credit card within 60 seconds, it can take between 1-2 weeks for your old balance to appear in the new account. Please note that the 0% balance transfer offer applies as soon as your card is approved rather than when your balance is in your account.

• Should I keep my old card open once I transfer the balance?

  If you’ve run up debt on the card before, you might be tempted to do so again. It’s often better to cancel the card and focus on paying off your balance on your next card. Even after you’ve made a balance transfer, you may still be liable for accrued interest from your final statement or for missed payment charges. Make sure these are cleared – if you don’t take action, they’ll continue to build up interest and penalties.

  However, there is an argument for keeping the old account open to benefit your “credit utilisation ratio” (that’s how much debt you have compared to your level of available credit), which can in turn affect your credit score.

• Can I apply for another balance transfer offer with the same bank after my current promotion has ended?

  Existing customers are generally ineligible to apply for balance transfer offers with their existing bank. However, if you then transfer your balance to a different bank, when this balance transfer promotion has ended, you will be able to transfer to the first bank again.

• Are there any common mistakes I should watch out for?

  Make sure you are making your payments on time, don’t ignore the revert interest rate and don’t use your card for purchases that could lead to additional debt. Most importantly, don’t miss payments – you’ll likely end up in a worse position that you were in to begin with.