Getting a zero percent balance transfer credit card is not as easy as it was a few years ago.  Nor is it always the best option for some consumers.  The key reason why applying for a zero percent credit card can pose issues is credit score damage and the domino effect of credit limit cuts.

The domino effect I speak of is happening to consumers whether or not they do zero percent balance transfers.  Essentially, one credit card company cuts a person’s credit limit.  This, in turn, negatively impacts their credit score.  Following the first cut, and seeing the credit score drop, a second, a third, and possibly even a fourth credit card company proceeds to slash credit limits.

Ultimately, the domino effect poses more risk to consumers who need available credit for purchases; if you are done racking up new credit card debt, then getting a new zero percent balance transfer card is going to provide significant savings on interest and help you get out of debt faster.

And, applying for a new credit card for balance transfers might not necessarily be the cause of domino effect credit limit cuts.  A number of people have posted stories on Smart Balance Transfers about credit limit cuts that simply came out of the blue. 

A common credit limit decrease story goes like this:  I always pay my bills on time, but I do have relatively high balances.  I went online to pay my bill and saw that my credit limit was reduced to $300 more than my balance.  Sometimes, this happens on multiple cards.

Unfortunately, if your credit limit is cut dramatically before you apply for zero percent balance transfer, your likelihood of getting approved declines dramatically.  This is because credit limit cuts increase your credit utilization ratio.  This ratio, which accounts for 30% of your credit score, is calculated by dividing your debt by your available credit. 

A person who had $3000 of debt and a $10,000 credit limit would have a relatively good credit utilization ratio of 30%.  However, if the limit is cut to $3,300, as has been happening, credit utilization jumps to 91%.  This can have a devastating impact on credit scores:  Smart Balance Transfer guests have reported 40 point score drops from these credit limit cuts.

Essentially, then, the only reason to avoid zero percent balance transfers is if you are applying for a mortgage soon or if you need to use your available credit for purchases.  You may get hit with domino effect credit limit cuts if you apply for a new card, but many people are being hit with them for no apparent reason. 

Thus, even though getting a new balance transfer credit card may increase your chances of getting slapped with a credit limit cut, at least you’ll be paying zero interest instead of 14% or higher.  Plus, if you get hit with a domino effect credit limit decrease, you probably will not be able to get a new low rate card in the near future.  For most people, the benefits greatly outweigh the risk.

Similar Posts:

Share