6. Not everyone qualifies
Another drawback about balance transfers is that not everyone will qualify for these deals. Banks and credit card issuers usually approve balance transfers only for people with good credit ratings. So unless your FICO score is in the 700 range or better, you might have a tougher time taking advantage of a balance transfer. Another problem for those with average credit profiles: Even if you do get approved, the credit line may not be as large as was initially advertised or as big as you’d hoped.
Applying for a new credit line generates an « inquiry » on your credit report, which usually dings your credit score for a short time. Even if you just shift debt around – as opposed to adding to your debt levels – your credit may still be affected. Because of quirks in the credit scoring system, your credit score may take a hit if you load up all your debt onto one low-rate credit card and max out (or nearly max out) a single card.
The good news is that over time, a credit card balance transfer can give your credit score a boost. This mostly occurs because you have an additional credit line open and more credit at your disposal. And the more available credit you have and are not using, the higher your credit score.
Credit card issuers know they can attract new customers by tempting them with zero percent interest deals for a period of time. While a zero percent offer sounds good, realize that it won’t last forever.
Most of these « teaser » rates last for about six months; some may be as brief as three months. More generous zero percent offers may last for 12 to 18 months. Look carefully before making your decision.
9. Some offers aren’t exactly what you think
The timing associated with a low-interest-rate credit card deal is especially critical if what you’re really being offered is a deferred interest card, as opposed to a zero percent interest card.
« Some card companies have deferred interest cards that may look like zero percent cards but are not, » says GreenPath Debt Solutions counselor David Flores. « Interest accrues on deferred interest cards, but you are not charged the interest if you pay off the balance in full by the zero percent deadline. »
By the end of the promotional period, « if you do not pay off the balance, » Flores adds, « the interest is capitalized onto your remaining balance so, in the end, you end up paying a high rate on a higher balance than you originally had. »
10. Some balance transfer « deals » are scams in disguise
In recent months, the Federal Trade Commission has shut down at least a half-dozen credit card scams that falsely promised unsuspecting consumers zero percent or low-rate credit card balance transfers. Instead, those consumers got fleeced, authorities say.
In one scheme, a company called National Card Monitor LLC charged people between $499 and $599 in up-front fees in exchange for allegedly securing a lower-rate credit card on the customer’s behalf. National Card Monitor even offered a « 100 percent money back guarantee. »
The problem was that the low-rate credit cards touted by the company never materialized. When customers tried to get refunds, they were stonewalled.
The lesson? Avoid paying up-front fees for any product or service. And be sure to read the fine print of any credit card offer before agreeing to the deal.
Lynnette Khalfani-Cox, The Money Coach(R), is a personal finance expert, television and radio personality, and regular contributor to AARP. You can follow her on Twitter and on Facebook.