Should You Use Credit Card Balance Transfers?
Are credit card balance transfers a good thing if you plan to carry a balance? Carrying a balance on your credit card may not be the way of your grandfather, but it might work for you. Some people wield their credit like a well forged sword, knowing when to use it and when to pay it in order to maximize their own financial investments and meet their goals. Your grandfather may have been a great man when it came to financial management, paying his bills and buying groceries with credit cards while bragging about the interest his money was earning in the bank while he enjoyed the free loan that a credit card grace period can provide.
But is there ever a time when your grandfather was wrong? When carrying a balance on your card could actually be a good thing? When credit card balance transfers might be wise? Maybe. Maybe not. It all depends on you and your goals.
Zero Usage Equals Zero Reporting on Credit Report
One of the most important functions of a credit card is to help you build your credit. However, if the card just sits in your drawer, doing nothing, it can’t build a thing. “Building credit” means demonstrating your financial responsibility in a way that can be calculated by and reflected through a FICO score. For your card to truly make an impact on that score it needs to be used, at least occasionally. Sure, you can pay it off in full, but you have to use it at some point.
Usage Period
As we just said, you need to show responsible usage. This is why your credit report shows details like average balance and credit limit, to demonstrate how much you use – or abuse – the credit card. In addition, many banks have a non-usage closure, which means that if you go anywhere from six to eighteen months without charging on or paying on that credit card then they may close it. They usually do so without warning and without asking you.
Credit Card Balance Transfers: Transferring Higher Interest Balances
If you have a balance on a high interest credit card, or owe money in some other high interest capacity, it can be beneficial to do credit card balance transfers of that balance to a low interest card. Sometimes, credit card transfers can be a good way to save on interest. Even if you maintain a balance you will pay less interest in the end, and that, as Martha Stewart likes to say, is a good thing. Use a credit card calculator payoff tool online to see how transferring balances might save you money! Here is a good one: http://www.creditcards.com/calculators/
To Balance or Not to Balance
Thus far we have said that you need to use your credit cards to keep them active and to ensure that they are building credit adequately. But does this mean that you necessarily have to maintain a balance on them and pay interest on them?
A FICO score looks at how long you have had credit (so keep your oldest cards), what variety of credit you have (mortgage, car, credit card), how much you owe and how well you have paid. This means that some people can be “punished” by paying their cards in full each month. But few people know the true ins and outs of the FICO score, and FICO plays it close to the vest. What we do know is that many people who never carry a balance on a credit card have scores over 800. In addition, there has been some talk in late 2014 that FICO may be changing this part of the credit score so as not to punish such good users. So it is possible that carrying a balance, at least sometimes, helps your score, but it may not be necessary or worth the financial cost.
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