Image may be NSFW.
Clik here to view.
Now that the holidays are over and the bills are coming in, you may be contemplating how to lower the amount of interest you pay on your credit cards and how to lower the amount you owe. You may have received pre-approved credit card offers in the mail, which include a low introductory interest rate to transfer the balance from your current credit card to the new one. What should you do and how does this impact your credit?
Compared to present card
It is a good idea to compare the new card offer to the features you have with the card(s) you are using now. Here are some items to consider:
When does the introductory rate expire?
What is the rate after it expires?
Is it a variable rate or fixed rate?
Is the rate after the introductory rate expires lower than that of you current card(s)?
Is there a transfer fee?
Is there an annual fee?
How long will it take you to pay off the balance? Is it within the introductory period?
You should not charge anything else on the account, so you can pay off your account. Otherwise, the balance transfer won’t be of value, because you will still have an outstanding balance.
Credit impact
You credit is impacted when you apply for new credit, close an account, or have your credit limit lowered. As a result of applying for a credit card, the credit card issuer places an inquiry on your credit report. This indicates that you were seeking credit and represents 10 percent of your credit score. Credits inquiries are only considered by the credit score for 12 months and don’t have a major impact on your score.
What has the most impact is closing a credit card account and the new replacement account has a lower credit limit than the one you just closed. This impacts your available credit, which is in the amount owed category, which contributes 30 percent of your score. If the new credit card has the same or higher credit limit, it won’t impact your credit as long as the amount you owe doesn’t increase.
I recommend keeping the older card(s) open and only use it/them once a year, which will keep it/them active. This keeps your available credit high. The new card’s credit limit is added to the available credit on your other card(s). Your goal is to have low usage of your credit cards, which improves your credit score.
Keep in mind, that if you are late once with a payment, you will not only pay a late fee but the introductory rate will be cancelled immediately. It is very important to read the fine print for all the ‘gotcha’s’.
Image may be NSFW.
Clik here to view.
Credit Reporting Expert, John Ulzheimer, is the President of Consumer Education at SmartCredit.com, the credit blogger for Mint.com, and a Contributor for the National Foundation for Credit Counseling. He is an expert on credit reporting, credit scoring and identity theft. Formerly of FICO, Equifax and Credit.com, John is the only recognized credit expert who actually comes from the credit industry. Follow him on Twitter here.
