Credit Rate Tarts

Credit Card Applications for Rate Tarts Become More Expensive

What does being a rate tart mean and what impact does it leave on one's credit scores? A rate tart is a credit consumer who tries to keep his debt or debts at 0% rate by constantly transferring balance from one card to another. A credit card with 0% intro period on balance transfers is a tart's major tool as it helps them to repay the debt without paying any interest at all.

Until recently, the cost of transferring the balance was quite acceptable, about 2-3% of the amount transferred, and lots of smart cardholders rushed to take advantage of this relatively cheap convenience of killing debt. Things have changed since all that turmoil on the credit and financial market started.

The transfer fee cap, usually amounting to 2-3% of the total amount being moved, is being eliminated by a growing number of issuers, thus crippling consumers in their game of killing the debt for free.

Most credit card applications with balance transfers do still offer the minimum 3% of the transfer fee but their maximum may reach as much as $75, reducing the saving benefit to nothing.

The issuers' new requirements are treated as a natural response to the strained situation on the housing and credit card market when credit providers lose profits due to the growing defaults on the one hand and interest-free line of credit (due to timely and full monthly payments) on the other.

Rate tarts do not bring much revenue to creditors, either, because they use the credit card only as long as the 0% intro period for balance transfer is on. When the interest free period expires but the card is still carrying the debt, the customer applies for another balance transfer plastic which also offers 0% intro period and another opportunity to pay no interest.

The bank does not lose anything having a rate tart as a customer but a great profit is also out of the question. Lenders want more, so they compensate for the unearned interest with increased transfer fees.

If you plan to use balance transfer to save on repaying the debt, see to it that the cost of the transaction does not counteract the advantage of the interest free intro period.

Now, as to the possible impact of transferring balances. Equifax (one of the national credit bureaus) representatives assure that rate tarting will not damage one's credit rating if you apply for another card in no sooner than in 6 months. Your old credit card will be shown as paid off and the new lender will see you as a responsible and creditworthy customer.

Sometimes, balance transfer is considered to be a mutually profitable deal even, because customers get an interest free loan and banks add a new good credit client to their customer base. No caps on balance transfer fees are expected to bring even more benefit to banks but will it meet the saving purposes of rate tarts?

Bryant Park

Bryant Park is a financial consultant for one of the companies listed on Wall Street. He writes on a variety of topics ranging from credit cards to different loans that can be availed by consumers. He holds a bachelor degree in Financial Services from Dartmouth College.