When paying off credit card balances by consolidating debt or using a balance transfer, be sure to utilize caution. Although you may think you are being responsible by consolidating your debt or that you are making a wise decision by taking advantage of a lower interest rate, you can actually be harming your credit score in the process. In fact, simply opening up a new credit card can cause your credit score to drop about five points.
Furthermore, if you are taking advantage of an introductory credit card offer that promises a low APR for balance transfers, dont take this as an opportunity to cut up your old card. Even if you do not intend to use the old card on a regular basis any longer, be sure to hang onto it as it provides a valuable credit history. Once you cancel that card, that credit history will be erased from your report and you might experience a decrease in your score.
Closing out an old credit card will also reduce the overall amount of credit you have. As a result, your debt-to-ratio amount may be changed, resulting in a lower score. In addition, when consolidating debt, you also need to be aware that your score will generally be better if you have $5,000 worth of debt spread out on several credit cards rather than on just one.
Opening up a new credit card in order to take advantage of introductory 0% APR interest rates can be a smart decision to make. Just make sure that you dont get into the credit card bounce game in which you are continually opening new accounts to transfer your debt to. In addition, work toward paying off that debt. Not only will that help give your credit score a boost, it will also help your pocketbook.