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Can a 0% Credit Card Hurt Your Credit?

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When you’re looking for a solution to high-interest debt, a balance transfer credit card with a 0% teaser rate can seem like the answer — and it may be. But, as with everything else you buy or apply for, it’s important to be sure what you’re getting into. Because the last thing you’d want is to find yourself with bigger financial challenges than the ones you have now as a result of trying to make things better.

How could it make things worse? Well, if you applied for the card without first researching to see what range of scores are typically required for the card, and your scores were lower than those of the target customers, you’d be turned down. In that case, you’d likely lose a few points on your credit score (temporarily) as a result of applying. You’d still have the debt problem you were trying to solve, and you wouldn’t have your new card.

The second way is if the credit limit is so low that the balance you transfer takes up more than 20% to 25% or so of it (less than 10% would be ideal). If you need credit for something else, a high utilization rate could temporarily depress your score. However, this isn’t like credit history. It disappears as soon as you pay down the balance. Credit expert Barry Paperno explains:

Anytime you’re talking about utilization, it’s helpful to remember than any damage, whether from one or more high card balances, is only occurring at the moment the score is calculated. So, yes, a 30% utilization percentage can hurt your score if your prior percentage was lower. But, there’s no long-term damage like there would be from a late payment. So once you bring that percentage down, it will be like that high utilization never happened.

So, although it can cause your score to drop, this sort of decline is easily and quickly reversible. And a card could be just the ticket for someone who is expecting a big payment from a client in, say, September. You know the income is coming, but you’d rather not pay interest in the meantime. If you have excellent credit, this could be a great time to use it to avoid having to pay to borrow.

However, be prepared to see your score drop if you end up with high utilization. “Putting $15K on a $20K limit may or may not exactly ‘tank’ your score, but it certainly won’t do your score any favors,” Paperno said in an email. “Whether it tanks or not will depend largely on the rest of the credit report, particularly payment history and other card balance/limit ratios. But remember, since past utilization has no bearing on a current score, as long as you’re not applying for new credit anytime soon, there’s no need to worry as long as you pay it way down before you do.”

Finally, if you know you will be applying for credit (as for a mortgage or car loan), it’s almost certainly a better idea to pass on a 0% offer. The risk of losing out on needed credit isn’t worth the temporary reprieve from paying interest.

If you think 0% could be a good idea for you, though, you can prepare to apply by getting an idea of where you stand creditwise. You can check your free annual credit reports (they look intimidating, but learning to interpret them isn’t all that difficult) and also check your free credit report card at Credit.com. That way, you can get an idea of the offers you might qualify for and also how you can improve your credit.

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