Key takeaways
- A credit card with an introductory 0 percent APR can help you manage new debt or pay off old balances.
- However, a 0 percent intro APR card can hurt your credit if it causes you to carry a higher balance than usual or if you carry your balance beyond the introductory 0 percent APR period.
- Applying for a 0 percent intro APR card could temporarily cause your credit score to drop.
There are a lot of good reasons to apply for a zero-interest credit card. The best 0 percent intro APR cards offer between 15 and 21 months of zero interest on purchases, offering plenty of time to pay off balances before the 0 percent intro APR expires. A credit card that offers zero interest for a year or more can be an excellent way to fund a large purchase, manage current debt or pay down old balances.
That said, there are ways in which a 0 percent credit card can actually hurt your credit. If you’re not careful, you could find yourself with more debt than you started with — and a lower credit score than you were expecting.
How can a zero APR card hurt your credit? It all depends on whether you pay off your balances promptly or let them pile up. Here are five ways a 0 percent credit card can hurt your credit — and five ways to prevent the damage.
1. Credit score dips when applying for new cards
In most cases, applying for a new credit card will cause your credit score to dip — but you won’t lose a lot of credit score points, and the effect is only temporary. Credit scoring services like FICO and VantageScore use this metric as a way to gauge whether you’re applying for too much new credit at once, and as long as you’ve waited at least 90 days since your last credit card application, you shouldn’t have to worry about the impact on your credit score.
2. Increasing balance during zero-interest period
If you use the 0 percent intro APR period to run up higher balances than usual, you might end up with the kind of credit utilization ratio that has a negative effect on your credit score. Remember, even though some rewards credit cards feature solid intro 0 percent APR offers, it’s important to stay focused on paying down your debt during the the intro period and not chasing rewards.
Credit scoring services look very carefully at the ratio of your current balances to your available credit, and it’s a good idea to keep your credit utilization ratio below 30 percent whenever possible. This means that if you have $10,000 in available credit across all of your credit cards, you should try to keep your total credit card balance below $3,000. Otherwise, you might find it more difficult to maintain a good credit score.
3. Carrying higher balances after introductory offer expires
Carrying high balances on a 0 percent intro APR card might cause short-term damage to your credit score — but carrying those balances after the introductory APR expires creates a long-term problem.
Once your zero-interest period ends, any unpaid balances will begin to accrue interest at the regular interest rate. These interest charges become a part of your credit utilization ratio, lowering your credit score month over month — and since credit card interest compounds, it might become even more difficult to pay off your outstanding balances. That’s why it’s a good idea to pay off as much of your 0 percent APR credit card as you can before the introductory APR expires.
4. Trouble making your monthly payments after the introductory APR expires
As your credit card balances get higher, your monthly minimum payment goes up. If you’re already having trouble making your credit card payments, you might find yourself in a situation where you’re no longer able to afford the monthly minimum — and you might end up missing a credit card payment, which is one of the worst things you can do to your credit score.
In this situation, the best thing you can do is contact your credit card issuer and ask for help. Your issuer may offer a lower monthly payment or guide you toward a hardship program that can help you manage your debts and your finances.
5. Defaulting on your debt
If you run up high balances, miss multiple monthly payments and find yourself in a position where you can no longer manage your debts, you might end up in credit card default.
Defaulting on your debt is the kind of financial problem that has a lasting negative impact on your credit since the derogatory marks that appear on your credit reports after you default could stay there for as long as seven years. To avoid this, consider seeking out debt relief as soon as you find yourself in a position where you are no longer able to make payments on your credit cards.
The bottom line
Nearly all of the ways an intro 0 percent APR credit card can hurt your credit come down to how you manage your credit card balance. If you have the resources to keep your credit card balances below 30 percent of your available credit, and if you’re able to pay off as much of your debt as possible before the introductory APR offer expires, you probably won’t have to worry about whether a 0 percent credit card will hurt your credit.
On the other hand, if you’re not sure whether you will be able to pay off your credit card balances in a timely manner, you should carefully weigh the pros and cons before applying for a new 0 percent intro APR credit card.
FAQs
The initial application may reduce your credit score temporarily. But provided you manage your account well – by paying down the debt and always making your monthly payments on time – having a 0% card should raise your score over time.
How does 0% credit card affect credit score? ›
The initial application may reduce your credit score temporarily. But provided you manage your account well – by paying down the debt and always making your monthly payments on time – having a 0% card should raise your score over time.
Is 0% credit card usage bad? ›
While a 0% utilization is certainly better than having a high CUR, it's not as good as something in the single digits. Depending on the scoring model used, some experts recommend aiming to keep your credit utilization rate at 10% (or below) as a healthy goal to get the best credit score.
Can you get a 0% credit card with bad credit? ›
0% APR cards require good to excellent credit
This means you'll need a FICO credit score of at least 670 or a VantageScore credit score of at least 661. If you have very good or excellent credit, which means a FICO score of at least 740 or a VantageScore of at least 781, your chances of approval are even higher.
What are the disadvantages of credit cards with an interest free period? ›
Despite their obvious perks, 0% interest cards have some downsides you should be aware of before you apply:
- The APR doesn't last forever. ...
- Balance transfers are not always included. ...
- You'll still pay a balance transfer fee. ...
- You can lose it for bad behavior.
A 0% APR is not good for your credit if you overspend, as high credit utilization and missed payments hurt your credit score. If you end up carrying a balance from month to month after the 0% period ends, you will also owe expensive interest charges, making it hard to pay your bills on time and build credit.
Are 0% credit cards worth it? ›
Key takeaways. A 0 percent intro annual percentage rate (APR) card can help you consolidate and pay down debt faster – without interest payments – if you're disciplined in how you use it. These cards typically come with a balance transfer fee, and you risk losing the 0 percent intro APR if you're late with a payment.
What happens if I use 90% of my credit card? ›
Helps keep Credit UtiliSation Ratio Low: If you have one single card and use 90% of the credit limit, it will naturally bring down the credit utilization score. However, if you have more than one card and use just 50% of the credit limit, it will help maintain a good utilization ratio that is ideal.
Is a 900 credit score possible? ›
While achieving a CIBIL Score of 900 is technically possible, it is extremely rare. Scores above 760 are considered very good or exceptional, providing significant benefits such as lower interest rates and higher chances of loan approval.
What is the 30 rule for credit cards? ›
A popular rule of thumb lists any rate below 30 percent as a good credit utilization ratio, but there's no specific credit utilization threshold that will help or hurt your score. Instead, simply try to keep your balance and utilization ratio as low as possible for the best chance at improving your score.
The Bank of America® Travel Rewards Secured Credit Card is the best credit card with a $5,000 limit for bad credit. You can get a $5,000 credit limit with the Bank of America Travel Secured Card by placing a refundable security deposit of $5,000. The card also offers 1.5 point per $1 spent and has a $0 annual fee.
What is the lowest credit score that you can get? ›
The two most widely used credit scoring models, FICO and VantageScore, range from 300 to 850, making 300 the lowest credit score possible. FICO and VantageScore give high credit scores to consumers deemed as lower-risk borrowers, and lower scores to high-risk borrowers.
Is zero credit worse than bad credit? ›
Yes, having no credit is better than having bad credit, though both can hold you back. Bad credit shows potential lenders a negative track record of managing credit. Meanwhile, no credit means lenders can't tell how you'll handle repaying debts because you don't have much experience.
Is 0% APR worth it? ›
The bottom line
Depending on your circ*mstance, the deal may not truly save you money. There are also a few situations where special financing isn't as good as it seems, and qualifying often requires excellent credit. Check current auto loan rates and ensure interest-free won't cost you more overall.
Should I pay off my 0 APR credit card? ›
Credit cards can easily work as a short-term loan, but cards with a 0% APR period have the potential to be free of interest. The key to using a credit card as an interest-free loan is ensuring you pay every cent of your balance off before your card's introductory offer period ends.
What is the catch with interest-free payments? ›
Strict Repayment Terms
But when it comes to zero interest loans, the term (length of the loan) is usually a lot shorter—which means your monthly payment is a lot higher. And there's no wiggle room when it comes to these deals.
Does having no credit card affect credit score? ›
You may be wondering if it hurts your credit score to not use a credit card. Generally speaking, it does not. In fact, the opposite may be true. Keeping an unused credit card open can help keep your credit score higher.
What happens if credit card balance is 0? ›
If your credit card balance is zero at the end of your billing cycle, you won't owe any interest. By comparison, let's say you have a $10,000 balance at the end of your billing cycle; at 22.77% interest, you'll owe an additional $183.85. And that number will only increase with each billing cycle you carry a balance.
Is 0 credit bad credit? ›
No credit means you don't have enough credit-related activity to generate a credit score, but bad credit means there are blemishes on your credit report.
Does having a credit card with a zero balance help your credit score? ›
Generally, a zero balance can help your credit score if you're consistently using your credit card and paying off the statement balance, at least, in full every month.
