Saturday 24 March 2007

Why 0% balance transfer are Good for your Credit Rating

A funny thing has been happening with the new Credit Cards that I obtained just to make use of the 0% balance transfer offers that were available. Many of the issuers are now sending offers to increase my credit limit! Apparently having a balance on the card and making the minimum payment each month makes me a model consumer, and the credit card companies are falling over themselves offering increased credit limits. I can only assume that either the system they use to decide who should be offered more credit only looks at the repayment history, and doesn't care about the interest rate being charged. Or perhaps they are just hopeful that once the 0% period expires I'll just keep making the minimum payment each month, rather than pay it off in a lump sum. Anyhow, there's not really any downside to accepting the increased credit limits from my point of view - we don't have a "credit score" as such in Australia, so I may as well have a large line of credit available in case of emergencies (it lets me keep all my funds invested according to my asset allocation, rather than keeping an "emergency fund" invested at call at somewhere).

For US readers taking out new cards and accepting higher credit limits may adversely affect your FICO score temporarily - but after a while it may still be a positive as an increased credit limit will mean that the amount of debt on your cards (for 0% balance transfers) would be a lower % of the total available credit.

Enough Wealth


mOOm said...

I guess they want to trip you into making some additional purchases on the card, becuase then your payments go into paying the 0% first and they get to charge you accumulating interest on the rest of it.

Funny Guy said...

Balance transfer credit cards can be really good for credit rating. They are also a great deal to combine debts or simply transfer the balance to lower rates credit cards. Balance transfer credit cards as well as low interest rate cards are mostly for people with good credit. If you'd like to have such priorities, aspire to higher credit score!