Bad Credit Consumers Have Credit Card Balance Transfer Options; We Explain Nuances

October 17, 2018

By Tedra Williams DeSue

Interest rates have been on the rise of late, and among those affected are credit card holders.

While many of them have enjoyed the low interest rate environment, they are now abandoning those cards they signed up for that came with low introductory rates. These introductory rates were for only a limited amount of time. To take advantage of balance transfer opportunities, these cardholders, as well as others, are seeking credit card providers that offer lower rates.

The balance transfer process can be a breeze for people with so-called good credit, but for those with bad credit, it can be a challenge. Clearly people with bad credit stand to benefit from hugely from being able to do balance transfers because they need to save as much money as possible.

Here, we discuss balance transfer options for credit cardholders who have blemishes, and downright bad credit. We also discuss how these cardholders can get their financial houses in order so that they too can lower their interest rate costs.

Rising interest rates

We recently told you about rising interest rates prompting credit cardholders to consider balance transfers. In that reporting, we noted:

The tear that the U.S. economy has been on has motivated the Federal Reserve Bank to raise its benchmark target federal funds several times since 2015. To position themselves for these hikes, credit card industry observers agree that credit cardholders should be proactive in being able to keep their costs as low as possible.

Understanding what constitutes bad credit

Bad credit is determined by a person’s credit score, which is often referred to as a person’s FICO Score. FICO stands for the Fair Isaac Corporation, which became the first company to implement a system to evaluate a person’s credit worthiness.

The score ranges from 300 to 850. Scores of 669 and below are typically considered fair or very poor, according to the reporting agency Experian.

FICO has found that as few as 37% of Americans have FICO scores that fall below 550.

Credit card balance transfers may not be best option

Credit scores can fall into the “bad” score range for a variety of reasons, including late payments, slow payments, and of course bankruptcy filings.

For those who find themselves in the bad credit group for any of these reasons, a balance transfer could help tremendously. That’s because transfers could allow them to reduce the cost of existing debt by providing a low introductory interest rate, notes Wallet Hub.

The outfit also notes:

…No major issuers currently offer worthwhile balance transfer credit cards to people with bad credit. Most bad-credit credit cards are either fully secured or have very small unsecured credit lines…That’s because issuers want people with poor credit to prove themselves before taking on a significant amount of their debt.

Money Crashers’ personal finance expert David Bakke told the following:

“You won't have as many options if your credit is bad or [if you] are behind on payments, but you do have some. It's also important to note that you probably will not be able to take advantage of cards with o% introductory APRs, but they'll probably be lower than what you're currently paying, so it can make sense.”

A few cards to consider are the Discover It Secured Credit Card, the OpenSky Secured Visa Card, and the Capital One Secured Card. Bakke stated:

“As you can see, all of these cards are secured meaning you have to back them with your own funds, so make sure you have that money available before you proceed. And once you do, it will be important to transfer over only a dollar amount of balances that you're 100% absolutely sure that you can pay off before the promo period ends.”

The reason being is that because your credit is bad, the following APRs once the promo expires are usually pretty steep, Bakke said. In addition, you'll have to ensure that you make all of your payments on time and in full, because you can run into further trouble if you can't make that happen.

First steps                                                                                  

While most understand how their financial situations led to their credit scores taking a hit, just as many may not understand that these issues take a considerable amount of time to resolve.

So, before a person with a bad credit score starts shopping for credit cards with lower interest rates, it’s important that the person recognizes that a balance transfer may not help. In fact, the effort may further hurt one’s credit situation.

This is especially the case if the cardholder submits applications to several credit card providers. Inevitably, the multiple inquiries by providers doing credit checks can cause the person’s credit score to tank.

A wiser idea is to make every effort to pay down existing credit card debt.

Clearly, taking proactive steps to pay off your debts can positively affect your credit score. Patience and diligence will be key to success. Experian notes, “You most likely won't see the results for two to three months.”

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