question about credit cards/balance transfers

[Roswell]

I recently opened a new credit card that has a 0% APR until next year. I transferred over a balance from my old credit card, on which I was paying 10% APR (or whatever.) Theoretically, what is to stop someone from doing this forever, and never paying interest on their credit card balance?

[squiffy]

Well, first there is often a transfer fee of 3%. Sometimes there is a max limit, but if there is no max limit, then you are paying 3% interest up front. So the 0% interest APR is really B.S.

Second, if you somehow default by missing a payment deadline, you might end up owing all the accrued interest anyway, depending on how the offer is structured, so there is some risk of ending up paying 20% interest, or whatever, their prevailing rate is. There may be some hidden small print that ends up screwing you in the end.

Third, you might hurt your credit rating by opening up too many credit card accounts, which could hurt you if you want to buy a home and apply for a mortgage.

So depending on your individual situation, your efforts may be penny wise, but pound foolish.

[Roswell]

Well, I just did this and there was no transfer fee at all, provided that I transfered the balance upon opening the account, which I did.

I have no idea how many credit cards I have had in the past. However I have consolidated my whole balance on this new card. Are you saying the existence of all the credit cards I've had throughout my life could hurt my credit?

[gull]

There's nothing to stop you from doing this. In fact, the guy who runs mymoneyblog.com does something similar: he makes thousands (I think) by maxing out 0% credit cards and putting the money in CDs.

Also, squiffy is right that it will impact your credit score. I don't know how severe it will be though. I think having lots of credit cards actually helps, but havings lots of new cards hurt because they care about the average time you've used each credit card.

[Jeff_B]

ive seen where people have done that and used a ton of credit and balancing acts to get lots of money and get points on cards... google app-o-rama

It does impact your history but it will come back up once you paid it down... I believe the main thing is utilization % needs to be under 50 in general

[SossMan]

[ QUOTE ]
Well, I just did this and there was no transfer fee at all, provided that I transfered the balance upon opening the account, which I did.

I have no idea how many credit cards I have had in the past. However I have consolidated my whole balance on this new card. Are you saying the existence of all the credit cards I've had throughout my life could hurt my credit?

[/ QUOTE ]

tell me you didn't close all the old ones....if so, then good luck with your credit for the next 12-18 months. (though if you are getting approved for 0% balance tsfrs, then you probably already have good credit, so temporarily knocking it down for a year isn't a killer)

[Preem]

[ QUOTE ]
Third, you might hurt your credit rating by opening up too many credit card accounts, which could hurt you if you want to buy a home and apply for a mortgage.

[/ QUOTE ]
Every time you apply for a new credit card, the issuer requests information from the three credit rating services - Equifax, Experian, and TransUnion. Their requests for information lowers your credit rating. The more inquiries, the lower your rating.

Other events also generate these types of inquiries - opening a new bank account, opening a new brokerage account, applying for a car loan, applying for a mortgage.

In an extreme case, your rating might eventually drop to the point where you no longer qualify for 0% cards.

[SossMan]

FYI,

inquiries only hurt for ~6 months and they are not linear. What I mean is that the first inquiry may drop your score by a few points, but the 10th in a month will drop it by more.

[BradleyT]

[ QUOTE ]
I recently opened a new credit card that has a 0% APR until next year. I transferred over a balance from my old credit card, on which I was paying 10% APR (or whatever.) Theoretically, what is to stop someone from doing this forever, and never paying interest on their credit card balance?

[/ QUOTE ]

Nothing. The age of accounts counts for a bit of your credit score though. Remember not to close your old accounts.


As for impact on credit scores -

The only time you should worry about applying and hurting your credit is when you're going to apply for a mortgage or car loan soon AND you're close to a borderline of score groups. For example if you know that 700+ will get you the best rate for a car loan and your score is 710 you may want to hold off applying for credit cards until after you get the car loan. If your score is 775, then applying won't do anything to the rate you're going to get.