Credit Card Hopping
Q: I have been transferring my credit card balances to try to get the best interest rate. When I get an offer in the mail for a really low interest rate credit card, I switch cards and transfer my balance from my old card to the new one. These low interest rates are usually only good for about six months, so when the introductory rate is about to end, I switch again. Will all this card hopping hurt my credit in any way? I'd like get a mortgage in about a year and don't want to jeopardize my chances, but I'd like to pay as little in interest as I can in the meantime.
A: You're smart to try to get a lower interest rate on your credit cards. The average interest rate on plastic hovers somewhere around 18 percent and at that high rate, it can be tough (and costly) to get out of debt.
Switching cards every six months or so may or may not hurt your credit rating, depending on how you handle it. If you transfer a single balance to a new card twice a year, it's no big deal. But if you're juggling balances on several cards, that may indeed harm your credit.
Two of the factors lenders consider when evaluating loan applications are how many open credit card accounts you have and how many newly opened accounts have balances. In addition, every time you apply for a new card, an "inquiry" is placed on your credit report showing that your file has been reviewed by a lender. Having too many accounts, several new accounts with balances, or numerous inquiries can count against you.
You're probably wondering how many is too many. Although it's important to understand that every lender is different, the general rules are:
- have no more than five or six open credit card accounts (department store and major cards combined)
- have no more than two accounts opened in the past year with outstanding balances
- have less than six inquiries in the past six months
As you prepare for getting a mortgage, be sure to get your credit report now to see what it contains and to make sure it's accurate. You can order your credit report from any of the three major credit bureaus, Experian; Equifax; or Trans Union. It usually costs $8.
If you find your report lists a number of accounts that you don't use anymore, don't rush out to close them all at once. Believe it or not, that can make your credit look worse. Instead, close out no more than one account every month or so. To close a credit card account, it's not good enough to pay it off and stop using it. Instead, you must tell the lender you want it closed. The lender will then report to the credit bureaus that the account has been closed at your request.
A final and important thought to keep in mind: You may not have to card surf to get the lowest interest rate. Next time your introductory rate is about to expire, call the issuer and tell them you'll jump ship if they can't offer you a better deal to stay. While you may not get the rock-bottom "teaser" rate for another six months, you may be surprised at the rate you'll be offered.
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