Tips for transferring a credit-card balance

NEW YORK - Don't like the terms on your credit card? It could be time to take your business elsewhere.

Balance-transfer offers are getting a whole lot sweeter for those with good to excellent credit. Introductory rates of 0 percent are now as long as 18 months, more than double the average time offered at the height of the recession.

The newfound generosity comes as banks compete to land the top spenders with clean credit records. These customers are increasingly prized now that new regulations have limited the penalty charges issuers can collect from less reliable cardholders.


Before jumping at the chance to switch cards, however, there are pros and cons that need to be weighed carefully. For example, it might turn out the introductory rate isn't worth the transfer fees or a higher regular rate that kicks in later. Moving your balance to another card could also ding your credit score.

Here's what you should know before making the leap:

The fees

It's intended to catch your eye - "0 percent introductory rate!" What isn't so prominently advertised is the fee you'll be charged for moving your balance.

This fee is typically 3 to 5 percent of your balance. And unlike before the recession, most issuers no longer cap how high that fee can go. So on a $10,000 balance, the fee would be between $300 and $500.

To properly size up the value of any balance transfer offer, you'll need to weigh the fee against any potential savings on interest charges. Luckily, the proliferation of online credit-card calculators means you don't have to put your math skills to the test.

Bankrate.com has a detailed balance-transfer calculator that can be found at tinyurl.com/6ceebrg. For a simpler version that looks solely at potential interest costs, try CardHub.com's calculator at tinyurl.com/6ao4n3u.

Remember that you need to be realistic about how quickly you intend to pay off your balance. Otherwise, your estimates on how much you stand to save will be way off base.

Rates and rewards

A 0 percent introductory rate on balance transfers is standard. The key is looking at the terms you'll face once the honeymoon ends.

To start, check the regular interest rate that takes effect after the introductory period. The offer will cite a range of rates; the exact rate you're approved for will depend on your credit profile. And don't forget that a late payment could trigger that interest rate earlier.

Also be aware that the interest rate on balance transfers doesn't always apply to new purchases during the introductory period. Or you may get 0 percent interest on new purchases for a shorter period than for your balance transfer.

You also want to evaluate any tradeoffs you'll be making in the rewards department.

To compare the different offers on the market, go to Bankrate.com, CardHub.com or CreditCards.com. It's also worth calling your issuer to see what offers are available.

Repercussions

Beyond the more obvious costs and savings, you'll also want to consider the impact a balance transfer could have on your credit score.

If you have strong credit, the impact of a balance transfer is usually minimal over time. But if you're planning on applying for a mortgage or other big loan in the near future, there are some issues to keep in mind.

Applying for a new card dings your credit score in the short term because it suggests you're in need of money. Your credit score can also take hits when an account is closed. This is in part because closing an account lowers your total credit line. A smaller component in your score is the length of your credit history. So you want to think twice before closing one of your oldest accounts.

If you're tempted by a balance-transfer offer but worried about hurting your score, see if you can use the offer to negotiate for better terms on your current card.

Even if you have a spotless payment record, however, don't expect to receive a matching offer of 0 percent for 12 months, said Ben Woolsey, director of consumer research at CreditCards.com

"The most you can expect is a reduction in your interest rate," Woolsey said.

In many cases, that may be all you were hoping for.

by Candice Choi Associated Press Feb. 27, 2011 12:00 AM





Tips for transferring a credit-card balance