Credit Cards

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Wednesday, July 27, 2005

News From Down Under: Transferring Balances May Hurt Your Credit Rating

I recently came across yet another term coined to describe those of us who like to take advantage of 0% credit card balance transfer offers: the "balance transfer surfer." Hmmmm...Do I like this new term? Yes, I think I do! Much better than "rate tart."

In Australia, Baycorp Advantage managing director Andrew Want warns that "balance transfer surfers" who transfer their balances too much may be doing harm to their credit rating. Click here to read the full story.

What does this mean for the rest of the world? Are credit reporting agencies in the United States going to start downgrading people's credit ratings for taking advantage of too many balance transfer offers? It's a possibility, but I don't think that would make sense, and here's why: just because some folks like to save money by transferring credit card balances, doesn't mean that these consumers are a credit risk, plain and simple. In fact, folks who like to take advantage of balance transfer offers are typically the sort of people who pay very close attention to their finances; these are the people who pay all their bills on time and have ambitions of someday having a FICO credit score of 850+. In other words, "balance transfer surfers" should be rewarded for their financial savvy, not penalized, and according to research I've come across, your FICO score most likely will experience a small increase if you transfer a credit card balance, especially if you transfer a balance to a credit card that has a relatively high credit limit (this is because you'll appear to be less "maxed out.")

And here's another reason: balance transfer offers are good for the banks and credit card companies. Egg, an Internet bank based in the UK, recently reported that it has become profitable thanks to the business they've gained by offering attractive credit card balance transfer offers. So if the banks, with all their vast resources and lobbying power, were to push for some sort of balance transfer credit rating penalty, they would in fact be shooting themselves in the proverbial foot.

So, fellow Americans, keep on transferring those balances! Just remember to pay attention to all the fine print so that you can be sure that you're making the right move. You don't want to end up transferring your balances to a credit card that has an interest rate that's higher than 19% once the 0% balance transfer period ends.

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