Small Loans Australia :: Articles
SHARE

Share this article!

How Credit Card Balance Transfers Can Damage Your Credit Rating

How Credit Card Balance Transfers Can Damage Your Credit Rating

Since the banks and finance providers have been castigated for the way they seemingly indiscriminately awarded credit to people who could ill afford it, the chances of being accepted for loans and credit cards have decreased.
Concurrently, there is a greater focus on individual's being aware of how credit works and what their financial behaviors means in terms of a credit score and history.

Why Balance Transfers Are So Readily Available

Since the banks and finance providers have been castigated for the way they seemingly indiscriminately awarded credit to people who could ill afford it, the chances of being accepted for loans and credit cards have decreased.
Concurrently, there is a greater focus on individual's being aware of how credit works and what their financial behaviors means in terms of a credit score and history.
The so called Credit Crunch has engendered a change in behaviours and has led to banks not only thinking about whom they extend credit to but also how they lend it.
It has also meant these card issuers have had to find new ways to increase custom.
Debt Stressed?
If you're struggling to pay your debts and covering living expenses, we're here to help. Through our national panel of Debt Management specialists, we can help customers with $10k or more in debt by consolidating your existing loans, stopping Debt collectors from contacting you and re-negotiating repayments on your terms!
The market has been hit with a whole slew of prepaid credit cards but also balance transfer offers have become a major marketing tool in the battle for new customers.

What is a balance transfer?

Quite simply, a balance transfer is moving the outstanding balance from one credit card to another that has a lower rate of interest. It is a simple way of reducing your monthly repayments on your card balance.

Why are they so attractive right now?

The credit card marketplace is highly competitive and these transfer is a relatively low risk option for the issuers to attract new customers. The need to attract new customers without creating a whole new generation of credit card owners unable to pay their debts has resulted in very attractive credit cards with transfer offers. Most major US issuing banks now have 0 balance credit cards in their portfolio of financial products. With offers extending from zero interest from 3 months right up to 18 months, there appears to be a credit card war raging with each bank trying to introduce the most attractive transfer offers.

Why balance transfer offers are not a get out of jail free card

The mere idea of reducing your monthly out goings by transferring existing credit card balances to a new card or cards where you can obtain an extended interest free period is very enticing. Prima facie, it seems entirely logical and indeed, eminently sensible. There are however, certain considerations that need to be taken into account before simply responding to the click here or apply now button on 0 balance interest credit cards:

You can adversely affect your credit score

Every time you make an application for a new card or apply for new credit of any form (loan, mortgage, cash advance and hire purchase), there is a note made on your credit file and your score is impacted with a reduction.
If you apply for multiple credit cards or respond to a number of balance transfer offers in a short period of time, there is a significant impact on your credit score.

There are fees involved

No credit is for free; even those deals with 0% interest on balances transferred will have an associated fee - after all, these card provider still has to make money from your transaction even if you are paying zero interest. Typically, balance transfer fees can be between 3-5% of the balance transferred meaning that when your interest free period starts it is with a higher amount that you had on your old card.

The APR after the initial offer period is high

One of the major pitfalls you could fall into is to take advantage of a balance transfer offer only to find that after the offer expiry date, the APR is higher than you were paying on your original credit card from where the balance was transferred.
It is imperative that you read the small print and are fully conversant with the interest rate you will be paying after the interest free period.

What not to use balance transfers for

When you are facing debt issues it is easy to succumb to ways of managing your finances that seem entirely logical at the time. There are two main ways of not managing your finances with balance transfer offers:
  1. Do not use it as an excuse simply to get another credit card
    If you are transferring a balance the temptation is there to keep the original credit card thereby increasing the availability of the credit at your disposal. This is a definite no-no unless you can absolutely afford the repayments on all of your cards
  2. Do not use balance transfers as a way to avoid paying your debt.
    The attraction of balance transfer offers does actually promote a way of carrying the debt; instead of paying off the debt you merely transfer it from one card to another and repeat after each introductory rate expires
In conclusion, are balance transfer offers and 0 balance transfer credit cards a bad thing? No! Not at all, but like every form of credit, they require close scrutiny before application and responsible management thereafter

Published:Sunday, 1st Aug 2021
Author: 148

Share this article:

Need a Bigger Boat?
We provide direct access to the best Boat Loan rates and options in Australia through our national panel of specialist marine finance brokers. Simply complete our quick & easy Boat Loan quote enquiry form to see if you qualify - and to gain access to the best Boat Loan offers from our broker panel.
Free Superannuation Advice
If you are thinking about rolling over or consolidating your super accounts, need investment advice, help setting up or administering a self-managed fund, we can help save you both time and money. Our national panel of Superannuation Specialists are standing by, ready for your questions!

Personal Loans Articles

Secured Versus Unsecured: Which Loan Option Aligns with Your Financial Goals? Secured Versus Unsecured: Which Loan Option Aligns with Your Financial Goals?
The landscape of personal financing is broad and varied, particularly in the Australian market where individuals have access to an array of loan options. When considering lending, the fundamental distinction to comprehend is that between 'secured' and 'unsecured' loans. - read more
How to Create a Budget That Really Works for You How to Create a Budget That Really Works for You
Budgeting is a foundational skill in the realm of personal finance, and as crucial as setting the sails is to a captain navigating through treacherous waters. Just as steady winds propel a ship towards its destination, a well-structured budget guides individuals towards their financial goals with confidence and control. - read more
The Smart Borrower's Guide: Understanding Interest Rates on Small Loans The Smart Borrower's Guide: Understanding Interest Rates on Small Loans
When it comes to borrowing money, whether it's for personal use or for your small business, understanding interest rates is paramount. An interest rate, simply put, is the cost you pay to borrow money. It's typically expressed as a percentage of the principal amount you're loaned. This fee is how lenders earn on the funds they lend and is a key component you should consider before signing a loan agreement. - read more
Debt Consolidation Strategies: How to Regain Control of Your Finances Debt Consolidation Strategies: How to Regain Control of Your Finances
Debt can often feel like a formidable obstacle on the path to financial stability. Many individuals battle with various forms of debt, from high-interest credit cards to significant loans that seem to have an unyielding grip on their financial lives. Recognizing the challenges that debt presents is the critical first step towards regaining control of your personal finances. - read more
Personal Loan Pitfalls: How to Avoid Common Mistakes in Loan Comparisons Personal Loan Pitfalls: How to Avoid Common Mistakes in Loan Comparisons
When considering personal finance in Australia, personal loans are a handy resource for achieving various financial goals, from consolidating debt to funding a major purchase. Yet, it's essential to approach this financial tool with caution and understanding. Proper comparison of personal loans can be the difference between a financial stepping stone and a stumbling block. - read more
How to Use Loan Comparison Tools Effectively - A Guide for the Credit-Conscious How to Use Loan Comparison Tools Effectively - A Guide for the Credit-Conscious
When it comes to securing a loan, the terms you agree to can have a lasting impact on your financial wellness. It's crucial to strike a balance between finding a loan that fits your needs and maintaining a healthy credit score. This delicate equilibrium is where loan comparison tools come into play, serving as navigational aids in the vast sea of credit options. - read more
Debt Consolidation: How to Streamline Your Finances with a Personal Loan Debt Consolidation: How to Streamline Your Finances with a Personal Loan
Debt consolidation is a strategy often utilized by individuals seeking to take control of their financial health. At its core, debt consolidation involves combining multiple debts into a single, more manageable loan, typically with more favorable terms such as a lower interest rate or a longer repayment period. - read more
Buy Now, Pay Later Services: Balancing Convenience with Responsibility Buy Now, Pay Later Services: Balancing Convenience with Responsibility
Millions of Australians use Buy Now, Pay Later (BNPL) services, such as Afterpay, Zip, humm, and Klarna, to make purchases and pay back the amount in instalments. However, concerns have been raised about the easy credit offered by these services and the potential harm it can cause to vulnerable individuals. The Australian government has promised to crack down on the industry by the end of the year, with a focus on ensuring appropriate checks are in place to prevent the inappropriate marketing of credit to vulnerable groups. - read more
The Truth Behind Payday Loans The Truth Behind Payday Loans
There’s a lot been said about payday loans. Many claim that the interest rates charged are outrageous. Others say that they are the only source of finance available for those with less than perfect credit score. There is a bit of truth in both claims but there is much more to payday loans than meets the eyes. - read more

Finance News

Australia Gears Up for Comprehensive Financial System Resilience Assessment in 2025 Australia Gears Up for Comprehensive Financial System Resilience Assessment in 2025
27 Mar 2024: .Paige Estritori

The Australian Prudential Regulation Authority (APRA) is positioning itself to inaugurate a widescale diagnostic of the nation's financial heartbeat in the year 2025. This financial health check aims to meticulously analyze the repercussions of unanticipated events on the country's financial stability beyond merely scrutinizing the banking sector. - read more
Climbing Mortgage Arrears Signal Heightened Financial Strain Climbing Mortgage Arrears Signal Heightened Financial Strain
26 Mar 2024: .Paige Estritori

Australian households are navigating a more complex financial landscape as mortgage arrears have climbed to a peak not seen since the outset of the COVID-19 pandemic, according to a new report from Fitch Ratings. The Fitch's Dinkum RMBS index has indicated that, as of the last quarter of 2023, households are falling behind on mortgage payments more frequently, sparking concerns about financial resiliency amid ever-tightening economic conditions. - read more
New Investment Approach for Australian New Homebuyers New Investment Approach for Australian New Homebuyers
25 Mar 2024: .Paige Estritori

Recent statistics have highlighted a notable shift in the strategies Australian first-time homebuyers are using to infiltrate the challenging property market. Analysis of 2023's purchasing trends indicates an emerging investor mentality among new buyers. - read more
Rentvesting Trend: First-Time Buyers on the Property Ladder. Rentvesting Trend: First-Time Buyers on the Property Ladder.
24 Mar 2024: .Paige Estritori

New insights from financial data show an intriguing pattern among Australian first home buyers in the recent year, with investment-savvy superstars choosing to become landlords right from the start. A striking one in five opted to dive into the property market, not for immediate residence but investment potential in 2023, indicating a significant shift in home ownership approaches. - read more
Australia Braces for Economic Shift as Rate Cuts Loom Amidst New Challenges Australia Braces for Economic Shift as Rate Cuts Loom Amidst New Challenges
21 Mar 2024: .Paige Estritori

Rising tensions within various sectors of Australia's economy signal a possible series of interest rate reductions by the Reserve Bank of Australia (RBA). Significant indicators, including increased unemployment rates, forecast a shift in monetary policies possibly leading to a period of lesser rates as experts observe a pre-emptive response to economic stagnation under the current administration. - read more
Steady Rates Persist as RBA Eyes Inflation Moderation Steady Rates Persist as RBA Eyes Inflation Moderation
20 Mar 2024: .Paige Estritori

In a recent monetary policy review, the Reserve Bank of Australia (RBA) has upheld the current cash rate at 4.35%, indicating a possible plateau in monetary tightening. This update aligns with widespread market analyses and fuels conversations about potential rate reductions in the coming year. - read more
Mortgage Pressure Soars: A Deep Dive Into Affordability Crisis Mortgage Pressure Soars: A Deep Dive Into Affordability Crisis
18 Mar 2024: .Paige Estritori

New data sheds light on the ever-increasing challenges faced by New South Wales families grappling with housing affordability. The latest figures paint a bleak picture as home loan repayments consume a substantial portion of household incomes. - read more
New South Wales Faces Steepest Climb in Mortgage Payments New South Wales Faces Steepest Climb in Mortgage Payments
17 Mar 2024: .Paige Estritori

The landscape of housing affordability across Australia has seen New South Wales (New South Wales) residents bearing the heaviest burden, with new data indicating a significant portion of family incomes consumed by mortgage obligations. - read more
New Mortgage Rate Shifts at Ubank Preempt RBA Decision New Mortgage Rate Shifts at Ubank Preempt RBA Decision
15 Mar 2024: .Paige Estritori

Ahead of the Reserve Bank of Australia's (RBA) anticipated meeting, Ubank, a subsidiary of the National Australia Bank, has adjusted its interest rates on home loans. While the RBA paused rate increases at the previous meeting, Ubank made a proactive move, updating its financial products' pricing last Thursday, much to the surprise of borrowers. - read more

Need Help Finding a Loan?
Find out now if you qualify and compare rates, offers and options from multiple lenders - without a credit check!
All finance quotes are provided free (via our secure server) and without obligation.
We respect your privacy.

Knowledgebase
Debt Consolidation:
A means empoyed to renegotiate debt. By combining loans and outstanding bills, a person can consolidate debt with a single financial institution resulting in a single monthly repayment.


Quick Links: | Small Loans | Student Loans | Finance Australia | Quick Finance | No Credit Check | Payday Loan | $5000 Loans