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Transferring your credit card balance from a higher interest rate card to a lower interest rate card almost always sounds like a good idea right? I mean, come on, if you can get a lower interest rate with a different credit card, why not? Basking in all the money you save off of low interest rates doesn’t sounds like such a bad idea.

Maybe this sounds like a dream come true, but do you ever really know when something is too good to be true? Sure, it does sometimes turn out to be that good, but sometimes there can come negative consequences along with these money saving benefits. If there was any way to avoid such pitfalls, you would want to do so, right?

So what kind of negative effects can there be because you do a balance transfer from one card to the next, and going from one interest rate to another? One major thing that is affected is your credit score. Sometimes doing a balance transfer from your old credit card account to a brand new one, whether it will save you money or not, can actually hurt your credit score instead of help it. Here’s why:

1. Debt Percentage

Your debt percentage is the amount of money in a percentage out of how much your credit limit is. So if you have a credit card balance of five hundred dollars and your limit is a thousand, then your debt percentage is 50%. You do not want this percentage to get above fifty percent, because it can hurt your credit score. In fact, the lower your debt percentage, the better it is for your credit score.

Your debt percentage can change automatically if you do a balance transfer, whether or not you charge on that credit card. This is because the limit on the credit card you transferred your balance to may be lower than it was on your previous card. This raises your debt percentage, making it more likely for you to reach or exceed your limit, making you a potential threat to creditors. This results in the downfall of your credit score, all simply because you wanted to save a little extra money with lower interest rates.

However, you can get a lower debt percentage by transferring your balance to a different credit card. This will occur if you transfer to a credit card with a higher limit than the one you had before. You can also lower your debt percentage by leaving both credit card accounts open, therefore having both limits add up to be one big one, making your balance seem smaller when compared to your limit.

2. Debt Percentage Obsession

Though there are ways you can save money on interest and improve your debt percentage situation at the same time, it can get out of hand. Opening too many credit card accounts just so that you can keep lowering your debt percentage is a mistake, because too many credit accounts that do not have a long payment history on them poses a threat to creditors, therefore lowering your credit score. It can actually hurt you to go overboard with new credit accounts, rather than improve your situation.

You may be wondering what a charge off is, and why the creditor representatives keep telling you that if you do not pay the money that you owe that they will “charge-off” your account. There are a few things you may want to know about charge-offs, like how they work, how seriously damaging they are to your credit report, and when your collection account becomes a charge-off. Here are some of the myths and assumptions that some people get caught up in about charge-offs, and the facts that set those myths straight.

Myth: A charge-off is a cancellation of your account

A charge-off is not a cancellation of your credit account. They usually prohibit you from charging any money on your account long before they even consider a charge-off if you have failed to pay your debts. Closing your account simply removes your privilege of charging on the credit card account that you owe money on, which action does not affect your credit report nearly as much as a charge-off.

Myth: Getting a charge-off is the end of the world

When a collection account becomes a charge-off, it certainly does damage to your credit report. It is unavoidably true that if your account is charged off, you usually still have to pay the amount that you owe, plus you have a “bad debt” mark on your credit report that will affect your ability to get credit in the future for a long time. However, it is not the end of the world, because it can be repaired over time with renewed credit charging and payment habits that you can attain gradually.

What IS a charge-off?

A charge off is not when they close your credit account. It is not a bad mark on your credit report that will ruin you forever and take away your ability to get a loan or another credit card. A charge-off is what happens when you do not pay the money that you owe and the creditor is forced to zero out the debt on their financial ledgers. That means that in their books, it shows that you no longer owe them money, because they cannot afford to have a large negative balance.

You end up paying for a charge of not only by paying back the debt you owe, but by punishment to your credit report. This mark on your credit report will be what creditors will use to devastate your financial situation to basically get you back for their having to do a charge-off. However, though your credit report will be hurt because of this, it can be slowly repaired, as I said before.

When does a charge-off occur?

Usually, your collection account becomes a charge-off around six months after the time of nonpayment. This means that if you have not paid your bills for six months, you either already have gotten a charge-off or you are very close to having your account become so. Six months is the amount of time that your creditors have before they are forced to zero out the balance on your account.