Balance Transfer Credit Cards

Balance transfer credit cards explained

Most credit cards will let you transfer a balance, although this will be subject to the following conditions:

• Your credit limit.
• The size of the balance you want to transfer.
• Who the balance is with (if your balance is on a card that is part of the same banking group, you may not be allowed to transfer it). 

If you want to transfer a balance, you will normally have to pay a fee to the credit card provider you are transferring the balance to. This is usually in the region of 3% to 4% of the amount you transfer, although some fees can be higher while other providers charge absolutely no fee at all.

At the end of the introductory period, your transferred balance will go onto your lender's standard balance transfer rate, which will most likely be around 20 - 25% per year.

Having a zero balance on a credit card isn’t necessarily a bad thing; indeed, it may even work in your favour. Unused cards show lenders that you’re not struggling financially, that you can manage multiple accounts, and also that you’re not using all the credit that’s available to you. You can also be safe in the knowledge that you’ve got a backup available should you need credit in future, such as in the case of an emergency, without needing to reapply.

However, there are some scenarios in which you may want to consider closing unused cards. Lenders don’t like seeing that you’ve got access to too much available credit, so if you’ve got several open but zero-balance cards, they may be less likely to grant you access to alternative forms of finance in the future. Similarly, those who have been working on improving their credit score may like to close repaid accounts, as doing so shows that the trend is going in the right direction.

It’s all about striking the right balance between having enough available credit without having too much, which is particularly important if you’re considering applying for a mortgage or another large finance agreement in the near future.

Ideally, your credit utilisation should be 30% or less – and in many cases, a maximum of 25% is recommended – to show lenders that you’re comfortably managing your credit commitments. This means your credit card balance shouldn’t be higher than 30% of its credit limit, but make sure to factor in other cards and loan agreements to ensure you’re not using more than 30% of your total available credit. Higher balances can impact your credit score.

Thanks to online banking, many people will be able to check their credit card balance by logging into their account and/or their smartphone app, which can usually give real-time updates about their balance, statements and payment dates. The same applies with telephone banking.

If you’ve overpaid your credit card and have a credit balance – perhaps by receiving a refund, or making an extra payment without realising you were up to date – the card provider owes you money. They’ll usually refund it to the current account associated with your card; this may be automatic or you may have to request it, depending on your provider. Alternatively, you can spend on your card as normal and the purchases will come out of the positive balance.

No, overpaying your credit card doesn’t increase the credit limit. You may have more credit available to you, but it’s tied up in the card, and will have no impact on your credit score or financial footing. The only potential outcomes are that it gets refunded, or you spend on the card to bring the balance back to zero. It’s also worth pointing out that overpaying will technically be against your card’s terms of use, so while it may happen accidentally, it isn’t advisable to purposely overpay. The only way to increase your limit is to make a direct request to your credit card provider.

Paying more than the minimum on your credit card can be a very good thing, as it means you’re repaying more of the balance and will therefore pay less interest, and will ideally be debt-free sooner. Only ever repaying the minimum means it will take a lot longer to clear the balance and you’ll be charged more interest, so it’s always advisable to pay more than the minimum if you can.

Use our minimum repayment credit card calculator and see the difference between only paying the minimum balance each moth compared to paying more. 

This depends on a number of factors, but whether or not you’re benefiting from any interest-free deals will likely be a key consideration. If so, there’s no need to pay off the balance until the interest-free period comes to an end, though you’ll still need to make the minimum repayments and may want to make sure you’ve got the means to repay it when that date arrives (such as by saving money into a separate savings account so you’ve got a lump sum ready) to avoid additional interest charges.

Otherwise, you can clear the full balance at a time that suits you, though remember that the longer it takes to clear, the more you’ll be charged in interest. It’s for this reason that it’s often recommended to repay the balance in full each month, thereby avoiding interest altogether, which is particularly important if you’re using the card to benefit from cashback or similar rewards to ensure that interest doesn’t negate any benefits earned.

This will depend on your individual card and its payment terms, and how long the payment takes to clear. This may only take a few hours if you transfer from a current account, though you’ll want to make sure it’s cleared and credit is available so you don’t go over the limit. Of course, if you already had available balance left before making the payment, you can continue to use the card regardless.

Credit card churning is the process of applying for multiple credit cards to benefit from introductory bonuses, before clearing or closing the cards once the benefits have been earned. It isn’t illegal, though it’s often frowned upon by credit card providers, and some will stipulate that previous beneficiaries of a bonus won’t qualify a second time. You also run the risk of lowering your credit score if you apply for too many cards in quick succession, and may find that you’re refused a new card altogether.

When you take out a new credit card to transfer a balance, the danger is that you put a balance back on your old card and end up with twice the problem.

If you don't want that to happen, you could:

• Cut up your old card and delete it as a payment option on any online accounts you have to prevent you from spending on it. Then close the account with the card provider.
• Ask your credit card provider to reduce your credit limit.

Unlike some interest-free loans you may get from furniture or electrical retailers, a 0% interest credit card does not mean that you don't make payments for an initial period.

You must pay at least the minimum payment every month: you can set up a Standing Order from your current account to avoid missing it.