If you’re trying to boost your credit score, zero-interest credit cards can be an effective tool. But like all tools, 0% APR credit cards can do more damage than good if not wielded properly.
What is your FICO score?
Before you begin applying for zero-interest cards, know your FICO score and how credit ratings work. Scores range from 300 to a high of 850 as measured by the Fair Isaac Corporation (FICO). Most cards that offer 0% promotions require a credit score of 690 or higher. Use this tool to help sift through available no-interest credit cards based on your FICO score.
Opening a new account will cause a sudden – although not huge – drop in your score, generally about five points or so. New credit applications account for 10% of your score, so if your credit rating is sitting on the margins between fair (630-689) to good (690-719), don’t apply for card willy-nilly because each one will hurt your FICO score.
When does the zero-interest promotion end?
Zero-interest credit card promotions often are a good device to transfer the balance from a higher interest card to better pay down that debt. Understand when the promotion will end and ask yourself: Will I be able to significantly chip away at what I owe during the 0% period? This period generally lasts from six to 15 months. Remember most cards charge a one-time fee equal to 3% of the total balance you’re shifting over, so factor that in. To understand the true cost of that balance transfer deal, use this tool.
Remember to always pay on time. Timely payments of all your bills accounts for 35% of your FICO score. It’s the biggest determinant of your credit score.
How much total credit do you have?
The second biggest factor in your score is your credit utilization ratio – essentially how much of your available credit you actually use. This accounts for 30% of your score.
If your 0% APR credit offer is greatly expanding your credit line, this can have a huge positive impact on your score. For example, if you have a $7,500 balance on a card with a $15,000 limit, your credit utilization is 50%. If your new card has the same $15,000 line of credit, your credit utilization will drop to 25%.
Credit utilization below 30% is ideal for FICO scores, although keeping it under 10% is ideal for raising your credit score.
The length of your credit history makes up 15% of your FICO score, so even if you’re transferring the total balance of an old account to a zero-interest credit card, keep the older card active.
If you qualify for a zero-interest credit card, they can be a great way to improve your credit score – if used with care. If you are seduced by the 0% deal to buy interest-free purchases, remember the promotion will come to an end and a higher interest rate will kick in. Rather than using the card to improve your credit score, that zero-interest deal can sink you deep in debt.
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