Dear Liz: Would it hurt our credit scores if my husband and I transfer credit card balances to interest-free cards? This would save us over $200 a month in interest. We’ve done this twice before but are concerned about hurting our scores.
Answer: Using balance transfer offers can dramatically reduce your interest costs. But this maneuver does have risks, with potential credit score damage just one of them.
Every time you open a new account, you risk a small ding to your credit score. Transferring a balance from a high-limit account to a lower-limit one can also cause your scores to drop. The damage can be temporary if you diligently pay down your balance, but many people who use low-rate balance transfer offers have gotten in the habit of moving their debt around rather than paying it off.
You need to know that the tune for this game of musical chairs may be about to end. Many credit card experts believe low-rate balance transfer offers will become much scarcer as we draw closer to the implementation date of the new credit card reform law in February 2010.
Indeed, most balance transfer offers are already less generous than they were a few years ago. Although people with excellent credit still get low-rate balance transfer deals, the low rates don’t last as long and are almost always accompanied by 3% to 4% balance transfer fees that are no longer capped.
By all means, take advantage of this offer if it makes financial sense. But don’t expect to be able to transfer your balance to another cheap deal once the no-interest time period expires. Use your low rate as an impetus to pay off this debt as quickly as possible, and resolve to stop playing credit card games by paying your balance in full every month.