When you transfer the balance of your credit card or home loan to a new lender to get a favorable interest rate or for a shorter period, the balance transfer occurs in the process. Various financial institutions provide balance transfer facility on credit cards. This facility helps in consolidating the pending amount on different credit cards into a single account. Similarly, home loan balance transfer can also help you take advantage of better interest rate from new lender. Sometimes your credit score can also be affected by balance transfer from one bank to another. So through this article, we are going to tell you how balance transfer affects your credit score.
How balance transfer affects your credit score?
Pending dues can mainly affect your credit score. You can avail loan transfer facility to manage your money efficiently and improve your credit score.
Benefits of transferring credit card balance
Transferring a credit card balance is the best way to deal with pending debts and pay off credit card bills. This is a convenient feature of credit card, which allows you to get rid of its debts. Credit card balance transfer helps you in following ways –
- By doing this you can avoid paying extra interest amount on pending credit card bills.
- More than one credit card loan can be accumulated and transferred to a single account.
- Cardholders get extra time to pay the outstanding balance. The bank charges zero or nominal fees during this period. Its processing is also quick.
But balance transfer is effective only if the bank where the balance is being transferred is offering a lower rate of interest than your current bank. Initially, the bank allows you to pay the balance for the first few months without interest. Some other banks charge a nominal interest on the balance for the first six months on transferring the balance. Therefore, before selecting a bank to do a balance transfer, check the offers offered by the bank. Banks can also offer EMI option to pay the pending amount.
Impact on credit score from the transfer of credit card balance
- As a borrower you should already know that credit card dues and loan EMIs can lower your credit score. As soon as you start paying off your debts, your credit score starts improving.
- When you repay your entire loan, you will see a significant improvement in your credit score.
- You can keep a credit card to pay for grocery and various urgent bills. Just make sure you pay all your pending bills before the billing cycle. Doing this will help you make a significant change in your credit score, as credit card dues lead to a low credit score. But if you use the card to pay in the fixed limit, it helps to improve the credit score.
What is the transfer of home loan balance?
Banks provide a facility to their borrowers. Under this, borrowers can transfer their home loan to another bank. This process is a convenient way to get the rate at which you are currently paying interest. With this, you can change the interest rate or duration of your home loan by transferring your loan to a new lender. For this, first you have to apply to transfer the loan to another bank. When this process starts, your bank will issue a statement, which will contain the loan information and consent form. After this you will have to submit your loan documents to the new bank and wait for the approval. When the new bank is fully satisfied with your track record, it will pay your outstanding balance to the old bank to close your home loan. In this situation, you have to keep in mind that transferring a loan to a bank is similar to taking a new loan. This is beneficial only if the new bank is offering a lower rate of interest than the old bank.
How does the transfer of home loan balance affect the credit score?
- It is very important to check your eligibility before applying to transfer the balance of a home loan, as your credit score may be low on each rejection.
- If the new lender is offering an option of shorter duration and higher EMI on transfer of balance, then it is fine to do so. With this, you can pay the remaining amount quickly and improve your credit score.