Balance Transfer Credit Cards: What Are The Real Risks In Switching Credit Cards?

Among credit card users generally there is an apprehension whether there are risks in switching credit cards. In fact, in most of the societies especially in the US, Canada, UK, France, Germany, Australia, New Zealand and other industrially advanced countries, the credit card debt is on the increase and many people are in its net and find it an unnecessary liability on them. As a result, many are looking for better options to minimize their liability.

Reasons for Switching Credit Cards

There are some reasons for switching credit cards. As already mentioned, so many people in a host of countries are on the look out for minimizing their credit card liability and as the companies are in aggressive marketing, new offers with attractive terms come their way and they might consider switching the old card for the new one with attractive features. The switching may give them many options including low or nil interest rates for transfer facilities, low transfer fee, discounts, award schemes, transfer checks, insurance coverage and the like. Hence, many people may go for switching their old card for new ones under better terms.

What One Should Look For

While Switching Credit Cards

In order to minimize risks while switching the credit card, it would be ideal if one look for some features in the new card before opting for it. The first thing is that it should have a higher credit limit than the previous one. Secondly, the new card should have lower annual percentage rate (APR) than the older one. Thirdly, they should look for a 0% interest balance transfer or at least low percent interest transfer. It is very important to ensure that the annual percentage interest rate after the introductory promotional period should be low. If these criteria are satisfied, the balance transfer and switching of the credit card may be beneficial for you mathematically.

Switching Credit Cards May

Affect Your Credit Score

Many credit card users may be looking for better options for switching their old credit card for new ones which better features. But before going for the new one they should consider whether the switching will affect their credit score. The new applications will result in multiple enquiries for credit and this will affect your credit score. That is, every time you apply for a new credit card, whether you receive one or not, an enquiry will go to your credit file. This will affect your credit score also. A bad credit score will adversely affect your chance of getting a new credit card with sufficient credit limit. Again, if you switch your old card for anew one and close the old one immediately after switching, this also will affect your credit score.

Switching May Result in

Additional Burden

One possible risk in switching an old credit card with higher rate of interest for a new one with lower or 0% interest rate is that the interest rate may in reality be unprofitable. That is, the attractive rate of interest will be for an introductory promotional period. After this period it will be a higher rate of interest that you will have to pay. If you are able to pay off the entire transfer amount on or before the date by which the grace period ends, you will be able to enjoy the benefits. However, in certain schemes, if you fail to pay the transfer amount by the due dates, some penal rates may accrue or even your benefits under the scheme may be forfeited.

There may be another risk when you go for switching your old credit card for a new one. That is, some companies will charge you the ordinary APR for the full transfer amount if you default in some payments. If that is the case, you have to ensure beforehand that in case you default, the ordinary APR will be applicable for the amount that is outstanding only and not for the paid up part.

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