How to do a balance transfer when you have poor credit

If you’re looking to do a balance transfer on your credit card but have ‘bad credit’ then you could be on the right track to fixing that.

A balance transfer usually offers you a zero-interest grace period during which you can make extra efforts to reduce the principal balance. This in-turn means you pay less in interest once your new rate starts.

Unfortunately, it’s a bit of a Catch-22 situation for many people who are looking for a balance transfer. They’re often looking because they’re trying to reduce their credit card payments; maybe because they’re struggling or because their income has been reduced recently.

Most providers, however, want people to have a good to excellent credit rating to successfully apply for a balance transfer. They want, it seems, only people who have strong credit history to apply for a solution for a poor credit history. It doesn’t have to be a trap, though.

But first a warning: A new credit card could give you the ability to double your troublesome debt, if you don’t manage it or close the old credit card account. So if you want to transfer the balance of your card to another card, think about closing the old card account as soon as you can.

How to overcome poor credit and get a balance transfer

In reality, there’s no such thing as good or bad credit because it’s a spectrum. For example, some people may be considered to have a “poor” rating simply because they’ve never had a loan or line of credit. 

On the other hand, if you’ve recently been discharged from a bankruptcy then you should wait a while before you apply for a credit card. 

There are lots of different factors that credit lenders take into account, with each lender giving a different amount of weight to each factor.

This means that you can still look for and apply for a balance transfer even with so-called bad credit. You just need to do some serious thinking, some serious searching and be prepared to take practical steps to improve your rating yourself. Spending time on a comparison site will help you to narrow your search down so that you’re more likely to choose the right provider for you.

Identify the reason for your poor credit history

You may be recovering from serious debt in the past, or have a history of missing payments. On the other hand, you may not have much of a credit history at all, or your income has never been particularly high. All of these things can have an adverse impact on your ability to get a balance transfer or, indeed, a credit card in the first place.

How to get your credit report

You can get your own credit report from any one of the three main credit reporting bodies (CRB) in Australia: Equifax (previously known as Veda), illion (previously Dunn & Bradstreet) or Experian.

Look at the reasons for your credit rating and see what you can do about them.

As these problems recede into the past, you should start thinking about balance transfers because you’re probably paying pretty high interest rates on any card you may currently have.

It might be necessary to talk to a debt counsellor first, (call 1800 007 007) though, to make sure you’re doing the right thing.

History of missing payments

If your poor rating is down to missed or late payments over the years then you need to step up and pay more of your bills on time. There are balance transfer cards out there for people like you, but you may well have to search hard and pay a little over the average for a while.

A low income

If you’ve always been on a low salary, don’t despair. As long as you’ve usually honoured your financial responsibilities, then you should be in an ok position. Some lenders offer cards with low fees and low interest to help people on lower incomes, but you should still be careful to stay well within your credit limit. Using more than 30 per cent of your limit can hurt your rating.

Very often, cards and balance transfers aimed at people on low incomes have a specified minimum annual or monthly salary, so make sure you only apply to cards within your income bracket. Remember, each application, or hard inquiry, that’s rejected leaves a note on your credit file.

Boxing clever

If you’re applying for a balance transfer then you really need to comb through the providers and their offerings to create a (very short) shortlist of lenders that suit your circumstances. Balance transfer offers tend to be very competitive, as the providers want your (new) business, so don’t be overconfident just because the lenders seem to be throwing themselves at you. You need to be very cautious and strategic.

You could even apply to your current provider

You may not find these on the comparison sites, but if you’ve been through a few applications and had no luck, then you can always try to reach a new agreement with your current provider. If you already have another product besides your credit card, like a current account or mortgage, with your provider, then you may be able to get a balance transfer, especially if it’s going to make life easier.

This should be a last resort, though, as other providers may want your business. If you look elsewhere, here’s what you need to do.

Check out the criteria, don’t ‘take a chance.’

Most credit card providers don’t just simply require a good credit history anymore. Life has become much more complex than that, especially with lenders that specialise in offering credit to people with a poor rating.

Instead, you’ll see minimum salary requirements and advice on what to do if you’re struggling with debt or recovering from problems. You’ll also see warnings about applying for credit if you’ve recently been bankrupt or you’ve had an enforcement of judgement over a debt.

If you know you’re likely to be rejected for reasons like these, don’t “take a chance” because you’ll be damaging your credit further.

Make sure you’ve conducted an exhaustive—but realistic—search for options

It can seem discouraging when you’re looking through the comparison table of balance transfer cards and they seem mainly to be aimed at people with a better credit history than you.

It’s possible to fiddle with the settings so that you filter out the cards that won’t be available to you; this saves time and also makes you feel more confident about the process.

If you apply and you’re rejected

Sometimes things just don’t work out the way you hoped. You shouldn’t despair, but you shouldn’t try any other providers either as you may be making things worse. Instead, you should find out why you were rejected, talk to a financial counsellor and see what you can do to improve your score.

The information contained on this web site is general in nature and does not take into account your personal situation. You should consider whether the information is appropriate to your needs, and where appropriate, seek professional advice from a financial adviser. If you or someone you know is in financial stress, contact the National Debt Helpline on 1800 007 007.

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