NEW YORK (MainStreet) — If you're like a lot of people, you get lots of credit card offers in the mail. And with those offers come promises of zero-interest balance transfers. While tempting, are they a good option for you and your family finances? A lot of times a balance transfer can be just what the credit doctor ordered in terms of getting your financial house in order. Here's what you need to know about making a credit card balance transfer.
Balance Transfers and Credit Utilization
"If you have a card that's maxed out and a second card with utilization that is next to nothing, you will likely see credit score gains if you transfer some of that high balance onto the low balance card," says Randy Padawer, a consumer advocate with LexingtonLaw. Indeed, credit utilization is one of the biggest factors when it comes to determining your credit score. However, unlike the other biggie, timely payments, you can make a big impact on your credit utilization in a short period of time. In fact, the next time your credit card reports your credit utilization ratio, you're likely to see an adjustment.
It's important to keep one thing in mind with regard to your credit utilization when thinking about a balance transfer. Credit utilization is a function of both your utilization in total and on each and every card. In other words, the ideal is to be using less than 30% of your total available credit at any given time and to be using less than 30% of your limit on every card. If you're going to do a balance transfer, you won't be impacting your overall utilization, but you will be able to move the money around from one high-balance card to something with a lower balance.