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Research: The impact of balance transfer on credit scores -

One can save a lot of money on interest by doing a balance transfer from a card which has a high interest rate to a card which has a low interest rate (at least until the introductory period is over). Most of our mailboxes are flooded with offers from card companies asking us to do balance transfers from high-interest cards to low-interest cards and save a lot of money. This is partly true, especially for those who have huge debts on their cards. However, what one does not know is that doing balance transfers can have a direct bearing on your credit scores as well as your credit ratings. It all depends on the situation and one needs to take a closer look to understand that.

For instance, if an individual has a $5,000 debt on the credit card which has offered a credit line of $10,000. Since the debt on the card is half of the credit line that is offered the percentage of debt is at 50%. This is called the "debt percentage".

All is well until now as the individual is making timely payments and is happy with the interest rates until there is an offer from another credit card company, which has a fixed interest rate which amounts to half of what the individual is paying at the moment with the present card company. It is natural for the individual to make a comparison of the interest rates that are levied by his current company and the money he could save by doing a balance transfer to a card with a lower interest rate. As of now, the individual`s credit score is good and the new card is obtained within a week, and the balance transfer is done.

From this point onwards, it is important to take note of all the latest changes. Firstly, one must be aware of the credit line that is available on the new card. Now the credit score as well as the rating would be entirely dependent on the individual. In case the credit line offered by the new card is lesser than that of the previous card then the debt percentage will be higher and this would in turn lower the credit score.

If one has an excellent credit score with their cards, and if they have used the card for more than a couple of years, in that case it makes sense to keep that card, especially if they had a good payment history. If the new cards offer a lower credit line then it is common sense not to increase the debt percentage just for the sake of the credit score and instead one would want to decrease the debt percentage.

While trying to keep the credit scores high one must ensure that the debt percentage is kept as low as possible. Even if the revolving credit remains the same it is better to use not more than 25% of the credit line that is offered and avoid using up 50% of the available credit limit. By taking a few simple steps one can ensure that the credit rating is not damaged by doing balance transfers.