Tag: credit card basics

Hello. My name is John Ulzheimer and I am a credit expert who contributes to
the Credit Card Insider blog. Today's question is this: If I have
a zero-interest credit card and I do not pay the balance in full each month,
will it hurt my credit score? Excellent question. Zero-interest credit
cards are very popular these days They are a great way to transfer a
balance from an interest accruing credit card
account to a zero-interest credit card account which will generally buy you some time so that you can
aggressively attack the balance and try to pay off your credit card
debt.

Now, credit card debt tends to be the most expensive debt that we
carry. The average interest rate on a credit
card is somewhere around fifteen percent can be as high as almost 30 percent. So
zero-interest cards are generally a pretty good deal. And the
grace period, meaning the period of time where you're paying zero interest, generally ranges somewhere between 6
and 12 months. That's the good news. The bad news is
this: the answer to the question is yes. You can hurt your credit scores if you do not pay that balance off in full each month,
and here's why. There is a measurement in all credit-scoring
systems, whether it be FICO or Vantage Score, that measures the balance on
your credit cards relative to the credit limits on your
credit cards. So, hypothetically, if you open a zero
interest credit card that has a ten thousand dollar credit limit, and you transfer balances in from other
credit cards, and say you transfer in five thousand
dollars, seventy five hundred dollars, let's say you
transfer in a full ten thousand dollars.

Then what you have just done is you've just
placed a heavily leveraged credit card on your
credit reports, and the ratio's going to vary depending on what the balance is
relative to the limit. So if you transferred five thousand dollars on to a ten
thousand dollar card, you're going to be fifty percent utilized. If you transferred seventy five hundred
dollars you're going to be 75 percent utilized. If you transferred ten thousand dollars then
you're going to be 100 percent utilized. That ratio, that
utilization percentage, is very important in your credit score.
The higher that percentage, generally speaking, the fewer points you're
going to earn in debt-related categories of credit
scoring systems, therefore the lower your credit score is
going to be.

So by simply leaving the balance stagnant,
and unpaid, Then you risk causing damage your
credit score that's going to persist for however long it takes you to
start paying that balance down. Now, even if you are making a payment
every single month, but it's a modest payment, either 50 bucks, a hundred bucks, then
it's very unlikely that you're going to be paying it down
enough to cause a positive change in that utilization percentage and
actually increase your score.

So, it's in your best interest to attack
the balance as quickly as possible not only because of your credit score,
but also because the grace period of the zero-interest is going to eventually expire, and if you don't have it paid off in full
by the expiration of the grace period, there's a chance that you
may have to pay interest retroactive all the way back to the day that you
opened the card and started transferring balances onto the card.
So while zero-interest cards are a great way to buy yourself some
time so that you can get out of expensive
credit card debt, the do you have some dangers and there
are some risks with using them if you don't use them properly and try to get out of
that debt as quickly as possible. To learn more about this topic or
anything else having to do with credit cards, please visit the Credit Card Insider blog
at CreditCardInsider.com. Thanks for your time, have a
great day.

As found on YouTube

Hi. My name is John Ulzheimer, and I'm a
credit expert who contributes to CreditCardInsider.com. If you have any questions for us then please submit them in the comments section below. Today's question comes from YouTube user Adriana "Adri" Vargas. Her question is this… What is a intro APR? She would also like me to talk about the
difference between an intro APR and a regular APR. And then purchases made under both the regular or the intro APR.

So first off, the APR is the annual percentage rate. So in other words it's the
interest rate you're gonna pay if you do choose to carry a balance on your card from 1 month to the next. If you pay your balance in full every single month and you never carry a balance forward, you don't need to worry
about the APR, because you're not paying interest, so there's nothing to apply interest rate
to. Most credit card issuers today issue rewards style credit cards. And one of those types
of rewards cards is the 0% interest APR card.

And most credit card issuers are marketing those to consumers who have debt on other cards. And their marketing them as balance transfer options. So if you have a balance on one of your cards, you may get offers from another card issuer saying, "Hey! Transfer that balance from that other card to our card, we'll give you an intro APR of 0% for 12 months, 18 months, whatever, and you'll also get 0% APR on new purchases. So essentially it is a bonus annual percentage rate, of some very low, in many cases, 0% structure, which is an
incentive for you to do business with them. Now, the reason this is called an intro or an introductory APR, is because it's not going to last forever.
Obviously a credit card issuer is in business to make money.

And one of the ways they make money is
by charging you interest on the debt that you carry from month to month. So they have to eventually change your APR from the intro APR of 0% to something greater than 0%. And that APR is what's commonly referred to, and in Adriana's question, is what's referred to as kind of a regular or persistent interest rate. That
interest rate is obviously going to be set based on the credit
quality of the applicant. But generally speaking, it's going to fall in the 15 to 16% range, although that can vary greatly in either
direction. But generally speaking, 15% is a good target or expectation. If you make
purchases under the intro APR, meaning that you make a purchase at 0%
APR, the APR on that particular purchase cannot go up, unless you do something like start missing payments. If you start missing payments, then the credit card issuer can asign a higher interest rate retroactive,
meaning that they can retroactively change the interest rate on
purchases that you've already made. But generally speaking if you continue to make your payments on
time, then all the purchases you made on under the intro APR will be priced out at the intro APR.

And remember, this is only relevant to
the point where you actually use the card long enough that the APR
actually expires. The regular APR, let's just say
hypothetically that that's 15%, any purchases made when that particular
APR adjusts to the new regular interest rate, any purchases made
under that, at that period of time will be priced out under those particular terms. So it's something to keep in mind, because
you may start getting credit card statements after you've had the account for awhile, that actually have variable purchases under variable interest rates. One is the intro.

One under the regular APR. Another thing to keep in mind is, there may be language in your cardholder
agreement that allows the credit card issuer to
charge you interest retroactive to the day that you
opened the card if you have not paid off the balance
transfer in full. This is going to be very expensive if
this is applicable to your card and you don't take care of it. So let's say you get an intro APR at 0% for 12 months, and you transfer $10,000 to that card.

And then for 12 months, you have no interest on that $10,000. If you don't pay that $10,000 off by the time 12 months expires, and your grace period of 0% APR expires, they're gonna hit you with interest all the way back to the first day that you opened your account, on the entire amount. So be very careful when you're using these types of cards. The expectation is that right now there's no interest. But going forward, there absolutely can be.

So you're going to want to work very diligently to payoff that card as quickly as possible, before the intro APR expires. If you have
any other questions pertaining to credit or financial topics, then please submit them to CreditCardInsider.com or in the comments section below.
Have a nice day!.