A 0% APR is good for your credit if you take advantage of the introductory period to pay off your debt in full. While credit card APRs don't directly affect your credit scores, you can bring down a large balance faster if you don't have to pay interest, which will ultimately help your credit score. Using a 0% APR credit card irresponsibly, however, can have the opposite effect.
With a 0% APR credit card, you don't pay any interest on new purchases and/or balance transfers for a certain amount of time. The average length of 0% interest is 12 months on purchases and 12 months on balance transfers. A 0% APR credit card can have a positive effect on your credit, but it all comes down to how you use it.
Things to Consider When Building Credit with a 0% APR Credit Card
- Choose a 0% APR credit card that suits your financial needs. It is usually best to apply for a card with a long 0% APR offer, because it will give you more time to pay off your balance. And if you keep your account in good standing, it will eventually help you build credit.
- A new credit card might affect your score. Keep in mind that regardless of the card’s APR, a new credit card application will result in a hard pull of your credit report. This inquiry may create a short term drop of your credit score.
- Avoid the urge to overspend. It goes without saying that you'll still have to repay everything you charge to your card. Rather than buying on impulse, come up with a reasonable spending plan that takes full advantage of the 0% APR on purchases.
- Bring your balance down to zero by the end of the 0% APR period. Cards with 0% intro APRs tend to have high regular interest rates. Regular APRs go into effect as soon as the promotional period expires, and they usually apply to any balance remaining at that time. Some retailers offer deferred-interest financing, which means you will retroactively owe interest on the entire original purchase amount.
- Remember to make monthly payments. Regardless of whether your balance is accruing interest, you still owe minimum monthly payments. Missing payments can considerably damage your credit score, and it also puts you at risk of losing the 0% APR period altogether.
- Keep your credit utilization rate low. It's generally a good idea to charge large purchases to a 0% APR credit card so you can pay back the debt over time while avoiding interest. However, a credit utilization rate over 30% will temporarily impact your credit score in a negative way.
How 0% Loans Affect Your Credit
Installment loans, such as car loans, also offer 0% deals, but they don't affect your credit score in the exact same way. Installment loans are not factored into your credit utilization score, as credit utilization only measures your use of credit cards and other revolving lines of credit. That said, a loan - and your payment record on a loan - will impact your credit score overall, so make timely monthly payments.
To keep track of your credit score while repaying a debt with a 0% interest deal, you can sign up for a free WalletHub account.
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