A balance transfer card can be a shortcut to getting out of debt faster if it means paying a lower interest rate.
While many card issuers have pulled back on balance transfer offers, largely due to financial uncertainty surrounding the COVID-19 pandemic, there are still 0% APR deals to be found.
“Balance transfers are tools,” says Howard Dvorkin, personal finance expert and Debt.com chairman.
Dvorkin says in the best-case scenario, you execute a 0% APR transfer and pay the balance down before the promotion expires.
Getting approved for a balance transfer card isn’t always a lock, however. Learn why your balance transfer application may be denied and what you can do to increase your approval chances.
See related: 9 things you should know about balance transfers
Why are balance transfers denied?
Generally, there are two scenarios that can keep you from executing a balance transfer successfully:
- Your application for a balance transfer card is turned down by the card issuer.
- Your application for a balance transfer card is approved, but when you try to transfer a balance to the new card, the transfer is declined, or the credit limit you were approved for is insufficient to cover the amount you want to transfer.
Here’s a closer look at some specific reasons for a balance transfer denial.
1. Applying for a balance transfer card with the same card issuer
Trying to transfer balances between two cards from the same bank could be a roadblock to your balance transfer goals.
“Most card issuers won’t allow a balance transfer between two cards that they issue,” says Marshall Armond, CEO of consumer credit education site CreditRevo.
That’s because credit card companies rely on balance transfers to make money through fees and interest charges. There’s little financial incentive for a card issuer to allow you to transfer balances between cards if you’re likely to pay the balance off before the promotional period expires.
“While this might seem like a way of simplifying the task by staying with an institution you know, it’s actually just a guaranteed way of getting your application rejected,” says Tina Hay, founder and CEO of Napkin Finance.
2. Having a low credit score
A too-low credit score could keep you from making the approval cut, even if you were prescreened for a balance transfer offer.
Armond says that while there are some balance transfer offers geared toward people with fair or average credit, most promotions are designed for people with scores in the good to excellent range.
“Generally, they like to offer balance transfer promotions to customers they don’t think will default on their balance,” says Armond.
Applying for balance transfer requests too frequently could also block your way to approval if multiple hard inquiries ding your credit score.
Every balance transfer credit card is different regarding the minimum score it requires for approval.
For example, the Citi Rewards+ Card offers a 0% introductory APR on balance transfers for 15 months from the date of your first transfer (then a variable APR of 13.49% to 23.49% after that) but you’ll need excellent credit to qualify for the card.
By comparison, it’s possible to get approved for a balance transfer with the Discover it® Secured card with bad to fair credit. This card doesn’t offer a 0% APR balance transfer, but you can get an introductory APR of 10.99% for six months if your transfer posts to your account by July 10, 2021. (After the introductory period, there’s a variable APR of 22.99%.)
Hay offers a good rule of thumb to follow: “The better your credit, the more likely it is that you’ll be approved, and be approved for better terms.”
She says the same things that can dim your chances of approval for other loans or lines of credit also apply to balance transfers. That includes late or missed payments and accounts that are close to their limit or maxed out.
Having a thin credit file could also be problematic. Credit card companies may not be willing to approve a balance transfer if you’ve only been using credit a short time or have just one or two active credit accounts.
3. Balance transfer requests that exceed your credit limit
You might be approved for a balance transfer credit card, only to be told later that your transfer request didn’t go through.
Not having enough available credit to complete the transfer could be the reason, says Armond.
It’s possible to be denied if you’re requesting a balance transfer for a larger amount than your credit card company allows.
Banks can limit balance transfer requests to a set dollar amount or percentage of your new credit line. USAA, for example, caps balance transfers at 95% of the balance transfer card’s credit limit.
Before requesting a balance transfer, it’s helpful to ask what your credit limit and balance transfer limits will be with the new card. This way, you can request a transfer amount that’s likely to be approved.
What to do when your balance transfer is denied
Getting denied for a balance transfer card may be inconvenient, but you can recover by taking the right steps.
First, you could ask the credit card company to reconsider. Whether you get the green light depends largely on why you were denied to begin with.
If you’re planning to ask the credit card company to give your balance transfer request a second look, be prepared to make a case for approval. For example, if you have a strong credit score or a low debt-to-income ratio, those things might work in your favor.
If a denial is due to poor credit or low income
You may be able to succeed in getting a reversal if you can offer extenuating circumstances to explain negative marks on your credit report.
The same goes if your request was denied because of low income, but you have other sources of income that weren’t reported on your initial application.
If your request was denied due to a lack of available credit
Armond says you can resubmit your original request using a smaller dollar amount. You’d then have to decide whether to pay off any remaining balance to the first card or apply for a second balance transfer card elsewhere.
How to increase your balance transfer approval odds
If you’re interested in getting a balance transfer, you’ll need good credit to do it, as offers have become more competitive.
These tips can help as you prepare to apply for a balance transfer card.
- Fix credit reporting errors. Credit report errors are not uncommon, and they can damage your credit. If you spot a mistake on yours, file disputes with the three major credit bureaus – Equifax, Experian and TransUnion.
- Know the issuer. If you have a card or two in mind for a balance transfer, scout out the card issuer’s transfer policies. You don’t want to waste time (or risk a potential credit score ding) applying for a balance transfer if it’s likely to be denied because you already have a card with that bank or because the amount you want to transfer is more than the credit card company allows.
- Review your credit limit. Make sure your card has enough room to accommodate a balance transfer.
- Toe the line with your existing credit accounts. If your score isn’t quite what it needs to be to get approved for a balance transfer, work on doing what you can to improve it. “Make at least the minimum payments on time,” says Dvorkin, and focus on paying down some of your credit card debt to improve your credit utilization.
- Carefully consider how additional applications will affect your credit. If you apply for too many credit cards within a short time frame, you could damage your score via multiple hard inquiries. And a flurry of card applications could send a signal to prospective lenders that you’re too reliant on credit.
Balance transfers can save money on interest charges, but getting approved for one can be tricky if you have a lower credit score or your approved credit limit is lower than expected. When applying for balance transfer offers, consider your budget and how much you’ll be able to pay each month. This can help ensure that you’re not left with a remaining balance once the introductory rate period ends.
Sending cash to friends and family? Before you reach for that credit card, grab a calculator. It’s time to do a little math.
With most everything you purchase online or through apps, credit cards have the edge. With plastic, you have chargeback rights. If you’re overcharged or receive the wrong item, broken merchandise or nothing at all, your card issuer will make it right. And if you use a rewards card, you collect points or miles, too. Win-win.
But it’s different story when you’re sending money through peer-to-peer platforms. Many of them (like Google Pay, Popmoney and Zelle), don’t allow consumers to use a credit card to send cash.
Others (like Cash App, PayPal and Venmo), allow credit cards but also charge a fee for the privilege – often about 3%.
See related: How to choose a P2P payment service
The hidden costs of using credit cards to send money
Choose a credit card to send money and you might also end up paying additional fees to your card issuer. That’s because the combination of some peer-to-peer apps with certain cards are coded as cash advances, rather than purchases.
For many cards, that cash advance code triggers a higher interest rate that kicks in the moment you make the transaction, as well as a separate cash advance fee that’s often $10 or 5% of the transaction – whichever is higher. (Currently, the average interest rate for cash advances is 24.8%, while the average APR for purchases is 16.05%.)
So the combination of peer-to-peer service fees, credit card cash advance fees and that higher interest rate (with no grace period) could make sending a few hundred dollars a bit more costly than you’d planned.
No chargeback rights with credit cards
The real kicker: Unlike other venues, you don’t have chargeback rights when you use credit cards to make peer-to-peer money transfers.
When you present your credit card in an online or brick-and-mortar store, there’s a merchant involved – and the law provides chargeback rights for your protection in case you don’t get what you were promised in the deal. But in a peer-to-peer money transfer, there’s no merchant, so currently the laws don’t give consumers any chargeback rights, says Christina Tetreault, manager of financial policy for Consumer Reports.
“The chargeback right requires a merchant,” says Tetreault. “One of the hoops a consumer has to jump through is to try and work it out with the merchant.”
If you use a peer-to-peer service and send the wrong amount or send the money to the wrong person, most platforms advise that the only way to get it back is to contact the recipient and ask them to return it. And that’s often the same whether you use a credit card, debit card, bank account or funded account on the platform.
“Be doubly sure when you’re sending the money that you’re putting in the correct information,” says John Breyault, vice president of public policy, telecommunications and fraud for the National Consumers League. “It’s still a buyer beware world when it comes to peer-to-peer.”
If you’re sending money and want to use a credit card, it pays to do a little sleuthing first. Check out the peer-to-peer site. Does it allow users to send money with a credit card? If so what, if any, fees does it charge?
On some platforms (PayPal is one), you could see similar fees for using a debit card – while sending from a bank account or funded account on the platform is free.
The good news is that many peer-to-peer platforms clearly disclose it when there’s an extra charge to use a credit card, says Tetreault. With Venmo, for example, you’ll get a pop-up message.
Harder to decipher: Will credit card transactions on the platform be treated as a cash advance? If your preferred platform doesn’t post this information, you might need to contact customer service. (And how quickly and easily you get an answer can tell you a lot, too.)
Ask your card issuer the same question: Are peer-to-peer money transfers on the platform you’ve chosen treated as a cash advance? If they are, what’s the interest rate, and what’s the cash advance fee?
“What I would suggest is to ask that question, via email, of your financial institution,” says Tetreault. “It may be in their FAQs. And you want to save that email. If you have it in writing, if there’s an issue later, you’re better positioned to contest that fee.”
But “the hard truth is you may not be able to find out ahead of time,” she says.
Another solution: Opt to use a credit card issued by a credit union.
“With credit unions, the APR is usually the same” for purchases and cash advances, says John Bratsakis, president and CEO of the Maryland and District of Columbia Credit Union Association.
Likewise, with American Express cards you pay your regular interest rate and no cash advance fees on peer-to-peer transfers, says Elizabeth Crosta, vice president of public affairs for American Express.
And credit cards from U.S. Bank register peer-to-peer money transfers as regular purchases – with no cash advance fees or cash advance APRs, says Rick Rothacker, spokesperson for the bank.
See related: How do credit card APRs work?
What’s your reason for using a credit card?
Take a good look at the reason you’re using a credit card, too. If you want chargeback rights, that’s not an option. If you’re doing it for the rewards, will the value of those points or miles be eaten up by extra fees or a higher interest rate you have to pay to use the card?
And if you’re using a card because you don’t have the cash, that might be a good reason to rethink the idea of sending money in the first place.
That’s a huge red flag, says Bruce McClary, vice president of public relations at the National Foundation for Credit Counseling.
“The need to convert credit into cash is what really gets my attention – because that hints at a lack of savings,” he said. “It’s a reality a lot of people are facing, especially now.”
Cash advances aren’t as expensive or risky as payday loans and car title loans, but they should be among your last resorts. If you’re looking for short-term relief, you could ask your credit card issuer for help, or find out if you qualify for a personal loan. You could also borrow from a family member or trusted friend, but be wary of the potential relationship toll if you can’t pay them back.
Getting cash from credit cards
Fifty-two percent of Americans report that the pandemic has damaged their finances, according to a recent survey by the NFCC. More than a fifth of those had to tap savings for everyday expenses, while 16% increased their credit card spending.
And that’s a sign of financial stress, says McClary. “It means that, in some situations, they have run out of savings.”
There are ways you can use your card to get cash, though.
Cashing in rewards
Some rewards cards from issuers such as Chase, Bank of America and US Bank let you deposit cash-back rewards directly to your bank account.
And Wells Fargo also will let you deposit its Go Far Rewards directly into another Wells Fargo customer’s account, says Sarah DuBois, spokesperson for the bank.
Many credit cards let you convert rewards into retail gift cards. So a pile of points can help a friend or family member buy much-needed groceries or a few holiday presents.
Or simply “buy a gift card for someone,” says Bratsakis.
Retailer-specific gift cards and gift cards issued through local and regional retail associations and malls often come with no fees – meaning every dollar you spend goes toward your gift.
While you can get a cash advance or use convenience checks from your card issuer, both those options often come with fees and higher interest rates. Not a smart money move, especially in the current economy.
While some lenders may offer convenience checks with deferred interest, that’s not the same as “no interest,” says Bratsakis. Also, if you don’t pay the loan in full, will you owe the full interest retroactively?
“That’s where consumers have to be careful,” he says. With a convenience check or even a cash advance, “that’s usually where consumers can get themselves into trouble if they can’t pay it off and get hit with deferred interest.”
See related: What is deferred interest?
When it comes to peer-to-peer payments, cash really is king. You can then put it into a funded account with the money transfer platform or your bank account. And most peer-to-peer platforms let you do this for free.
“The safest way to use these services is to send money person-to-person and be diligent about getting all the details correct so it doesn’t go to the wrong person,” says Tetreault.
Only send to people you trust and know in real life, she says. “And before sending money make sure you understand what, if any, fees you might incur.”