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'The savings potential is tremendous' with a balance transfer card: You'll need this credit score to get one

If you are struggling to pay down debt, a balance transfer could be a good move. Here's the credit score you need to qualify these days.

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Maintaining a good credit score can help you save thousands of dollars on auto loansprivate student loansmortgages, and credit card interest rates. It can also help you qualify for a balance transfer card to help lower the interest you pay on your debts.

"A balance transfer is simply when you move all or part of what you owe on one credit card to another credit card," says Matt Schulz, chief credit analyst at LendingTree. It gives you a way to save on interest and make more progress paying off your debt.

In some cases, you can even move other debts, like medical debts, onto a balance transfer credit card, says Ted Rossman, industry analyst at CreditCards.com. "The advantage is lowering your interest rate," he says. For example, you might owe $2,000 on one credit card with an interest rate of 16% and $3,000 on a different credit card at 20%. With a balance transfer, you could move that $5,000 onto a new card and pay 0% interest for up to 18 months. These low APR offers generally last for a year or two. 

But with the pandemic leading Americans to experience financial challenges such as unemployment, balance transfer cards are becoming harder to get. Banks such as Citigroup and Barclays are reducing their offerings and American Express is dropping them altogether. 

Still, there are ways to get a balance transfer card, and having a strong credit score helps. Here's the score experts say you need.

Aim for a credit score of 700 to 740

To qualify right now, experts say you need a credit score of at least 700 to 740. "Before the Covid-19 outbreak and the associated spike in unemployment, I would have said a credit score of 670+ would qualify you for most balance transfer cards," says Rossman.

Many lenders feel nervous about the economy and job market, since those factors can make it harder for people to pay back their loans, so they're being more selective about who can qualify. "Some banks are pulling back their balance transfer card offers, or at least downplaying them on their websites," Schulz explains. "Banks are doing whatever they can to avoid taking on new risk in the wake of the economic upheaval caused by the pandemic."

A balance transfer is simply when you move all or part of what you owe on one credit card to another credit card.
Matt Schulz
chief credit analyst at LendingTree

How a balance transfer can help you save

"The most important thing it can do," says Schulz, "is to help you pay your card balance down faster by reducing the total amount of interest that you'll have to pay on your debt."

"If you can qualify, the savings potential is tremendous," says Rossman. Let's say you had a $5,000 balance on a card with a 16% rate. If you transferred it to one with a 0% rate for 18 months and paid off the balance by the end of that promotion, you'd save $658 in interest.

A balance transfer can also improve your utilization rate, which is one of the most important factors in credit scoring. "Utilization is how much debt you have compared to how much available credit," Schulz says. 

"For example, if you have $10,000 in available credit and $3,000 in debt, your utilization rate is 30%. However, if you add a new balance transfer card with a $5,000 limit, that changes your total available credit to $15,000 and drops your utilization rate to 20%," Schulz explains. "That can help your credit score significantly."

Do your research before signing up

Balance transfers can give you a break on accruing interest, but there is often one catch: "There's usually an upfront balance transfer fee of 3% to 5%," Rossman says. "And if you don't pay the full amount by the time the clock runs out, interest will start to accrue." 

He suggests comparing balance transfer credit cards from several lenders. Understand the annual percentage rate (APR) and how long it lasts, as well as fees. If the new interest rate and fees won't save you money in the long run, focus on paying off high-interest debt and making on-time payments to improve your credit.

Be consistent with payments and try to pay more than the minimum. As your credit improves, you may be approved for a better rate later on.

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How balance transfer credit cards can help you pay off debt

You can improve your credit score

To get "very good" credit, which FICO defines as a score of 740 or higher, these are the most important things you can do, according to experts. 

  1. Check your report for errors. Some 20% of consumers who spotted and corrected an error on their report saw their credit score improve as a result, according to a 2015 report from the Federal Trade Commission
  2. Pay your bill on time. To boost your score, "the biggest thing" is to "never be late" on your monthly debt payments like student loans or credit cards, Tendayi Kapfidze, chief economist at LendingTree, told Grow. Setting up autopay can help you stay on top of payments.
  3. Keep your utilization rate low. Rossman, told Grow that "the most impactful thing that consumers can do to quickly improve their credit score is to lower their credit utilization ratio." You want to keep this number as low as possible, ideally below 30%. Do so by limiting your new charges, avoiding closing old cards, and creating a plan that helps you pay down debt rather than add to it.

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