How 0% Credit Cards Can Hurt You and Your Credit
A 0% credit card can appear to be a very enticing offer. The ability to pay for items using your credit card without racking up interest seems too good to be true.
We’ll sometimes it can be. While this may seem like your best option to help you finance a large purchase or pay down debt, there can be some consequences if you don’t pay down the balance in the time allotted. Here’s how a 0% credit card and balance transfers can hurt you and your credit.
You Can Risk Losing Your 0% Deal if Late
When used properly, your 0% interest credit card can be a good tool to help you pay down debt. However, if you make a late payment on this type of card, you can risk losing your 0% deal. Some credit card companies offering this deal will pull the promotion even after just one late payment or if you fail to pay the minimum. When an issuer takes away this promotion, you may be hit with a higher interest rate than a normal credit card – as well as a late fee.
Hit with Interest if You Don’t Pay in Allotted Time
Additionally, if you’re still carrying a balance by the time your promotion period ends, you will be hit with an interest rate possibly higher than you had on another card. For example, if your deal offered 0% interest for 12 months, and you’re carrying a rather high balance, once your promotion ends you will start accruing interest. This can be a costly mistake. It’s always important to make sure you pay your card off in full when using 0% credit cards – especially after a balance transfer!
A New Card Means a Hard Inquiry
Like your typical credit card or loan, acquiring a 0% credit card will still show up as a hard inquiry on your credit report. Though it will not lower your score tremendously, your score will drop a few points. This means if you’re on the cusp of a “Good” score, you may be lowered into the “Fair” range. So, if you’re looking to take out a mortgage in the near future, your new score can mean a slightly higher interest rate.
You’re Still Taking on Debt
Even though you won’t be paying interest for the term of the promotion, you will still be racking up debt if you don’t pay the card in full. 0% interest shouldn’t be a reason to go out and make lavish purchases. Like any other card, when used improperly, you will only be hurting yourself.
High Credit Utilization Can Still Hurt You
Unfortunately, 0% credit cards can encourage people to spend past their means since there’s no interest on items charged. This not only makes it difficult to pay the card off but it means you may be using too much of your available credit. The amount owed makes up 30% of your FICO score. If your credit utilization ratio is too high, your credit score can take a dip.
It’s important to note that 0% credit cards and balance transfers may be helpful for those who are looking to get their debt under control or finance a large purchase. However, it can only save you money if you are careful to pay down the debt in the allotted time. Know that this is not always your best or only option. If you are thinking about transferring your debt to an interest free credit card in order to pay down debt, contact Tayne Law Group and find out what other debt relief options may be available to you.