Do you transfer balance using your credit card? Don't make this mistake, it could damage your CIBIL...

Credit cards are used by many people these days. Often, excessive spending and inability to make timely payments can lead to debt traps. In such situations, a balance transfer can prove to be a relief. In this way, the cardholder transfers the balance from their old card to a new card, which initially offers a very low or zero interest rate.

However, this option is beneficial only if used responsibly. Otherwise, it can harm your credit score (CIBIL Score). Therefore, it is crucial to understand and use balance transfer correctly.

What is a balance transfer?

Balance transfer means you transfer the balance from one credit card to another. Banks and financial institutions often offer low or 0% interest for a limited period to attract new customers. This is especially helpful for those who are paying high interest on their old debt and want relief.

How does a balance transfer affect your credit score?

Impact of a Hard Inquiry

When you apply for a new card, the bank checks your credit history. This is called a hard inquiry. This can temporarily lower your score.

Improving Credit Utilization Ratio
If the new card has a higher limit, your overall debt-to-income ratio improves. This can have a positive impact on your score.

Disadvantages of Closing an Old Card
If you close your old card after a balance transfer, your average credit history becomes shorter. This can cause a slight drop in your score.

Dangers of Frequent Balance Transfers
Frequently transferring balances shows the bank that you are overly dependent on debt. This is called credit hunger, which is detrimental to your score.

Balance Transfers Can Be Costly If Not Paid on Time
It is very important to pay your dues and credit card bills on time. If you don't make timely payments even after transferring the balance, the cardholder may face legal and financial difficulties.

What to keep in mind?
Only transfer a balance if you can repay the loan on time.
Repay the loan before the low-interest window ends, otherwise, high interest will be charged again.
Avoid unnecessary spending on the new card until the old balance is paid in full.
Read the terms and conditions carefully. Sometimes, there are hidden charges on balance transfers.

Benefits of Balance Transfer

The biggest advantage of a balance transfer is that it allows you to repay the loan at a lower interest rate than the old card, saving you money.

Second, it helps with debt control, as you can repay your balance in easy EMIs.

The third benefit is credit score improvement, as your credit score gradually improves if you make timely payments.

In addition, balance transfers offer convenience, making it easier to manage different debts in one place.

Disadvantages of Balance Transfers
If payments are not made on time, the interest rate can be higher than normal.

Frequent balance transfers can damage your credit score.

Hidden charges can be a burden on your pocket.

When should you transfer a balance?

When you have a high interest balance on your old card.

When a bank or financial institution is offering you a 0% or very low interest rate.

When you have a plan for repaying the debt and can make timely payments.

Tips for Successful Balance Transfer
Pay every installment on time.

Avoid new expenses on the new card.

Transfer only what you can comfortably repay.

Settle the entire balance before the offer expires.

Disclaimer: This content has been sourced and edited from Zee Business. While we have made modifications for clarity and presentation, the original content belongs to its respective authors and website. We do not claim ownership of the content.