The danger of making frequent balance transfers

Balance transfers are when a person transfers their credit card balance from one credit card to another credit card, usually a lower interest credit card.  While this can be a powerful way of cutting down the costs of credit cards, it can have a sting in its tail.

There are two types of low interest credit cards, those that last for a long time and those that last for a short time.  The short term credit cards have a very much lower interest rate.  This is usually an uneconomic interest rate, and sometimes it is as low as zero per cent.  This is designed to attract new customers, as an alternative to marketing credit cards, which can cost quite a lot of money in order to attract the credit card holder.

The problem with short term low interest rates is that while they are very low, they do not last for a long time.  Usually the credit card interest rate lasts for between three months and fifteen months.  After this time the interest rate will go up to a higher rate that will be considerably higher than the rate that can be got from a long term low interest rate credit card.

The temptation with this is to get another low interest credit card.  This can actually be a very short term solution.  The reason for this is that credit scores are aversely affected if there are a large number of credit card applications within a short period of time.  The reason for this is that a person who applies for a lot of credit in a very short period of time is seen as being at risk of getting in financial trouble quite quickly.

This can happen quite easily if there are a large number of cards applied for between two sets of cards.  If for example a person has a card with a zero per cent interest rate and this card lasts for three months, then if they apply for two new cards (in order to allow for one to refuse) then the amount of cards on the person’s record over a year will be eight.  This sort of record will raise alarm bells.

Credit card holders who are likely to have a credit card balance in the long term should be looking at long term low interest credit cards.  Although they will be more expensive they are less likely to be stranded when they are unable to get a credit card.