Hurting Your Credit Score by Applying For a Credit Card
Do you realise that you have the potential to hurt your credit card simply by applying for a credit card? Many consumers fail to realise that with every application for a credit card, the inquiries made by the credit card company into their credit reports result in up to 5 points being deducted from their credit score! Now, that’s food for thought in case you are unaware and are contemplating applying for another credit card to add to your credit card collection.
Why they do take away points from your credit score when you apply for a credit card? The answer is simple. By applying for a credit card, you are essentially applying for a credit line. Having multiple credit lines show a tendency towards excessive credit usage and thus, increases the risk of an uncontrolled spending trend and this in turn, increases the chances of your defaulting in your credit.
So, are we dealing with hard and fast rules here? Not exactly. The “consolation” one gets is that the dent in the score is likely to be repaired in a matter of months if you are able to keep to your payments religiously. Moreover, when your credit card application is successful, there is a potential upward trend in your credit score as this new line of credit boosts your personal credit. The converse is also true. If your credit card application is rejected, you risk further decrease in your credit score. And when you then start applying for other credit cards hoping to get lucky, you might end up severely depleting your credit scores if those application are also refused.
Maximising Balance Transfers
There was one point in time when I was not able to keep up with my credit card outstanding sums resulting in having a carry-forward amount the following month. The end result is straightforward - there is interest to pay. And a pretty high amount of interest at that. What I did was to utilise a balance transfer process to another credit card.
Many credit cards offer a balance transfer facility whereby you can shift your current outstanding sums / debts from other credit cards to the card which grants you the balance transfer facility. Most of these balance transfer facilities come with an initial low, if not 0%, interest period. So, if you are already paying 18% per annum on your current credit card debt, it would make sense to transfer the whole outstanding amount to another card under the balance transfer programme. This would save you a whole lot of interest payment - provided you do not incur new expenditure on your credit cards.
Before you execute the balance transfer, it would be advisable that you look out for the credit card which provides the best credit offer. Find out how long is the introductory period. The longer, the better. This would provide you adequate breathing room to manage your credit card debt. Find out also whether the special interest rate granted to you is only restricted to the transfer amount or whether it also applies for new purchases. Next, are there fees and charges involved for utilising this balance transfer facility? Some banks charge a one-time administrative fee. Some charge a percentage based on the amount transferred.
Finally, find out whether the amount transferred gives you any other rewards - eg. accumulation of points or rebates.