Balance transfer credit cards for bad credit

If you have credit card debt, you’re far from alone. According to The Money Charity, Brits owed £63.6 billion in November 2022, an increase of 7.82% from 2021. Credit card debt average £2,290 per household and £1,203 per adult.

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.

When you’re paying a high rate of interest on credit card debt, it’s sensible to shift it over to a 0% balance transfer credit card. These cards charge no interest for a set number of months which can give you some much needed breathing space while you focus on repaying your debt.

You’ll usually need to pay a “balance transfer fee” of around 3% of the balance. 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.

When the introductory low-or-0% rate expires, any outstanding balance starts accruing interest at the much higher “standard” rate. So in an ideal world, you’d want to clear the balance before any introductory low or 0% interest period expires. If you know that you won’t fully clear your balance before any introductory offers expire, then the revert rate should be a factor in choosing a 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.

The best way to see whether you’ll qualify for a balance transfer card is to use an eligibility checker. These show you which credit cards you’re most likely to get accepted for. And the best bit is, they won’t hurt your credit score. “Soft-search” eligibility checks give you a clear indication as to your likelihood of getting approved, and potentially also 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).

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.

Pretty much all card issuers now offer an eligibility checking tool on their website, but sometimes 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.

This will depend on your situation, which is why it’s well worth using an eligibility checker. If you use one on a comparison site, it will check a whole range of cards for you in one go so you’ll be able to see the best one to apply for.

Using an eligibility checker 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 rate you’d be offered. Be aware that if you’re looking for 0% credit cards for bad credit, it’s likely that any 0% rate you’re offered will be for a shorter time than advertised, and the rate of interest charged after the 0% deal ends will be higher.

An eligibility checker 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.

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).

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.

As you start to use your credit card and make your monthly repayments, the lender will report this to credit reference agencies (CRAs). As long as you keep up with your repayments and use your card responsibly, your credit score should start to increase over time. Additionally, as your debt reduces, you become more appealing to lenders.

Credit utilisation ratio

Once you’ve transferred over your balance from your old credit card to the new one, you might want to close your old credit card account (especially if it’s a card with an annual or monthly fee). After all, by closing the card, you’ll remove any temptation to use it for further spending, and you’ll have one less account to stay on top of.

However, there is a small 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, while also keeping your old credit card account open, could improve your “credit utilisation ratio”, which may have a positive effect on your score. However, it’s important that you don’t start spending on your old card again, and make sure you regularly check your statements to reduce the risk of fraud. By reducing your debt on your new card, you’re improving your debt utilisation ratio anyway. And given that most cards charge an inactivity fee of around £12, there’s usually more arguments in favour of closing your old account

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 record. Opening a new card and transferring the balance over lowers the average age of your credit. However this is just one small fact, and reducing your debt is more important and likely to benefit your credit score more.

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), and there’s normally around a 3% fee involved. Plus, cash withdrawals are recorded in your credit file and can impact your score. Find out more about what is termed a cash advance on your credit card.