When good credit is such a hot commodity, most consumers dont realize that many of the steps they are taking to clean up their history may be negatively affecting their score. For example, consolidating many of their debts onto a 0% balance transfer account sounds like a great move for balancing ones budget but that move can actually reduce ones credit score.
The Fair Isaac Corporation is the company that created the formula for the credit scoring model, aka a consumers FICO. There are dozens of subtle changes that can negatively impact the mathematical equation making up ones credit history. Some factors that may affect ones score is too many inquires into ones credit, opening new credit cards, closing credit cards and ones credit utilization ratio.
When it comes to balance transfers, the latter is the most important criteria to be aware of. If a consumer wants to take advantage of a zero percent balance transfer offer to consolidate their outstanding debt, they need to know the total credit limit that they may be moving their balance to. If that limit closely totals the amount of the transfer, their credit utilization ratio will be greatly reduced and may result in a point reduction on their FICO score.
Balance transfers may also end up costing more then a credit score point reduction, it may also cost you cash. Many consumers have to pay a fee of anywhere from 2%-4% to take advantage of a 0.0% transfer balance offer. Before switching over your debt, make sure that the money you will save by taking advantage of the incentive is significantly greater then the fees you may have to pay.
