The process of balance transfer facilitates the card user to reduce his credit card balance by transferring the remaining balance to another account of another bank or financial institution. Balance transfer is usually done to avail credit at lower interest rates.
Balance transfer is very popular among credit card users mainly for the following reasons:
- Low interest rate on existing dues.
- Saves money.
- Enables faster repayment to eliminate dues.
- Decreases the burden of loan to a great extent.
While balance transfer has its benefits there are times when balance transfer from one account to another might prove to be financially upsetting. Some of such instances are as follows:
When an individual applies for a major loan, the company before processing the loan checks the credit history of the applicant in case the applicant has been involved in recent balance transfers - then that gives a negative score in the credit history. With every balance transfer a new account gets created and these further open newer credit lines and so a dip in the credit score is inevitable. It is therefore advisable to go for balance transfer either after the loan application has been processed or well before the loan application.
Getting the extra credit at a lower rate and more time will be a very bad reason to go for balance transfer. This not only increases the interest rate but also makes you pay much more than the stipulated amount.
One should also avoid the policy of applying for balance transfer every time the grace period or the free period offered by the previous card company expires. This would lower the credit history score. Moreover in some accounts there are restrictions that do not allow balance transfer at the end of the grace period.
Embassies when processing the visa of individuals for relocation in to other countries run a check for the number of open credit lines that the individual has in his name. The greater the number of balance transfers more will be the debts and open credit lines. This gives a negative impression.
Unwise use of the facility will give a bad credit history and jeopardise future financial ventures.