Does 0% APR affect your credit rating?

Intro APR offerings can provide cardholders with much-needed relief from high interest rates. And for responsible cardholders who practice healthy credit habits, they can help you improve your credit score and get out of debt.

Contrary to popular belief, APR’s initial offers are not free to pay absolutely nothing until the initial period ends. In fact, if you miss a payment, your zero interest period may end abruptly.

Before applying for a 0 percent APR credit card, it’s important to know exactly how 0 percent APR works and how it affects your credit score, for better or worse. That way, you know exactly what you’re getting into when you open a new credit card account, and how to maximize your initial period before it ends.

How 0% introductory annual income works

The 0 percent starting annual interest rate charges zero interest on the cardholder’s carry-over balance during the promotional period, typically six to 21 months. At the end of the introductory period, the regular interest rate is applied. Zero APR cards are usually available to customers with a strong credit score. Zero APR offers can be extended to purchases, balance transfers, or both, depending on the terms of the card.

Before applying, it is important to read the terms and conditions of the card to find out what the 0% APR applies to and how long it is valid. Read the fine print on the card (usually below the field that lists rates and fees) to understand how you can lose your introductory APR, for example if you are late on a payment. Please note that most cards require you to pay at least the minimum payment in order to keep the 0 percent APR offer.

How 0% APR Affects Your Credit Score

Intro APR offers are designed to help cardholders avoid paying interest and speed up the debt repayment process. However, your account may go up or down depending on your payment behavior.

Let’s take a look at how your credit score can be affected during or after the 0 percent APR period.

The impact of the credit rating before the period of 0% per annum

Before your initial APR period begins, you must first apply for an APR zero interest credit card. And, like any other card, it is considered a new loan, which requires serious investigation. Your credit score may drop five points or less, but this effect is temporary.

This new card will also reduce the average age of your bills, which will affect your credit history (which is 15 percent of your FICO score).

The impact of the credit rating in the period of 0% per annum

If you have a card, your credit score can improve if you make monthly payments on time and in full. Transferring a high-interest balance to your new zero-interest card can help you by reducing the overall interest you pay and focusing your monthly payments on the principal. If you make recurring payments that are well over the minimum amount and do not charge any new purchases to your balance transfer card, you can reduce your credit utilization rate, which is 30 percent of your score.

It’s a common misconception that a zero interest offer means you don’t have to make any payments until your initial period is up. However, this mentality can cost you. As mentioned earlier, you must make at least the minimum payment each month to keep the 0% APR. Otherwise, you can cancel your initial APR offer and your issuer will treat it as a missed payment. After 30 days of not paying your balance, this missed payment may be reported as a late payment, which will significantly lower your credit score.

Credit rating impact after 0% p.a. period

Ideally, you should pay off your entire balance at the end of the introductory period. If you leave the card open, the card’s credit limit will be included in your available credit. As long as you don’t make large card purchases, this increase in total credit will help reduce your credit usage.

If you do not pay off your balance before the end of the promotional period, your account will begin to accrue interest at the normal annual rate.

Thus, it is best to pay off your balance as soon as possible. If not, you can quickly find yourself overwhelmed by your debt and rising interest rates again. If this causes you to miss a payment, the consequences could negatively affect your account.

Things to Consider Before Applying for a 0% APR Credit Card

If you’re thinking about applying for a card with an introductory 0 percent APR offer, make sure you know what you’re getting into and that it’s the right choice.

• 0% initial annual interest rate compared to deferred interest rate. The 0% starting APR does not earn interest for a period of time, and then interest will be charged to your existing balance at your card’s regular APR. Deferred interest offers zero interest for a period of time, but after that, you will be charged interest accrued from the date of purchase if you still have a balance.
• Know how to maximize the 0 percent APR period. The introductory annual income is most beneficial to your loan if you have a plan to pay off your balance in full. If not, you will start accumulating interest again and may negate any effect the card originally had.
• Your credit limit may be too low for all debts. What if the credit limit on your new balance transfer card is too low for you to transfer all of your multi-card debt to it? If so, you should have a plan in place for which balances to transfer and which to keep on your current cards, and how to pay off your debt efficiently. Also, you may not want to transfer too much to a new card, as your balance may use all of the credit.
• The balance transfer fee varies from 3 to 5 percent.. Many balance transfer cards charge a balance transfer fee. Depending on how large your debt is and how many fees you end up paying, it may not be worth doing the balance transfer at all.

bottom line

Zero interest cards can be a great tool. They allow you to make large, interest-free purchases, transfer high-interest balances to save on overall interest payments, and reach your debt repayment goals faster.

However, the key to taking advantage of the 0 percent APR offer is to maintain healthy financial behavior. If you have any doubts about your ability to pay off your balance in full before the introductory period ends, consider alternative ways to pay off your credit card debt.

CreditCards.com Team This article was created using automation technology and carefully edited and reviewed by our editorial staff.