balance transfer

5 Things You Must Know About Balance Transfers on Credit Cards

Balance transfer helps the credit card holder to pay off the balance amount on an existing card by transferring it to another card. A customer is usually drawn towards credit card balance transfers to avail lower promotional rates of interest and additional benefits like rewards programs, points, etc .. Most credit card companies aim to entice cardholders by waiving the balance transfer fee. They might even offer an introductory period of 6-18 months, during which no interest would be charged on the sum transferred.

Scrutiny of these offers is imperative to benefit. By being attentive you can gain a significant advantage while avoiding high interest rates during debt payment.

1. Zero interest card vs. balance transfer fee

When you are executing a balance transfer, you’re required to pay an interest of 3 to 5% of the total transferred amount, called the balance transfer fee. Although this can add up to a hefty amount on top of your balance, it might still be less than a card with high interest rate. It is important to calculate how much you are saving with a zero-interest credit card, compared to your current monthly interest rate. Choose what’s best for you- a card with 0% interest for an introductory period with an applicable balance transfer fee, or one without the zero-interest feature but no balance transfer fee.

2. Your credit score might get hit

If you’re planning to apply for a new credit card, be ready to brace your credit score from taking a hard hit. Whether your application is approved for the card or not, your credit score could decline after the enquiry. Canceling your original credit card upon making the balance transfer could result in your average account age to drop, as well as cause your total available credit to dwindle. So, beware of these factors impacting your credit score negatively. A simple way out of this mess is not to close the original card but to continue it with zero balance. Nonetheless, if you’re easily tempted to use the original card, then it’s best to close it.

3. The offer is temporary

It is important to remember that the zero-interest offer is only temporary for 6-18 months, and the Annual Percentage Rate (APR) will escalate once the introductory period gets over. Don’t let the low APRs tempt you, try to pay off your balance within this period itself. Make sure that you don’t miss the opportunity to pay off your debt while it is still low, and not start to accumulate high interests on your balance again.

4. Scrutinize the terms of your card

Your application has to be approved to avail a 0% promotional rate of interest. Also if the credit limit on your 0% balance transfer credit card is so low that it doesn’t even cover the amount you require, there’s no way the card can help you (even after you’re approved for one). You’ll simply have to pay two amounts instead of one, every month. Hence, remember to scrutinize the terms of what you’re getting yourself into. As promotional APR offers can exclude balance transfers, check whether the 0% interest is applicable on balance transfers and/or purchases, as a lot of companies offer it for either one.

5. Avoid making new purchases

If you’re an impulsive shopper, it is advisable to steer clear of getting a new credit card. If you keep adding debt to the original balance transferred via another credit card, it’s bound to put you in a worse position than where you started. More often than not, the 0% interest isn’t valid for new purchases, which means you’ll end up accumulating new interest immediately upon making that new purchase. Therefore, it’s best if you don’t start making new payments with your balance transfer credit card.

Your focus should be on strategically decreasing your debt through your balance transfer credit card. Make sure to enquire about each & every term singularly: starting from the expiration date of the 0% APR, to the interest rate after the introductory period, applicable balance transfer fee, and least monthly payment.

 

Terrible Credit Card Mistakes First-time Users Easily Make

Credit cards allow users to pay for items or services in lieu of cash. However, a person should be responsible enough to understand that the card must not be considered free cash.

That is why, for some people,  without proper guidance, it is easy to end up in serious debt within a short span of time.

Here are six of the most common mistakes first-time credit card owners make when using their cards and what can be done to avoid them.

1.Believing credit isn’t important

In the real world, having good credit is vital. Credit scores allow an individual to apply for mortgages and save up on car insurance premiums.

Without excellent credit scores, you won’t have access to lower interest rates or premium credit card rewards. Even potential employers and the landlord of your future apartment might check up on your credit score to see your ability to pay your debts.

By managing your credit responsibly, future credit card and loan applications are approved more easily and you can gain access to better offers. You can also use your good standing to negotiate better interest rates on loans. Even credit cards with a limit of $5000 can help build your credit score.

So apply for a credit card early, but make sure to use it wisely.

2.Spending too much

Credit cards offer users the opportunity to buy or pay for products or services that may currently be out of financial reach. However, if you’re not aware of where your money goes and how much you spend on a monthly basis, you could quickly max out your cards and end up in crippling debt.

Live below your means. This is true regardless of whether you are still currently relying on your parents for financial support or working multiple jobs.

Create a budget to get an idea of your financial state. Make a list of your sources of income and your monthly expenses. There are apps that can make recording this information easier, although simple spreadsheets can work just as well.

Write a goal to motivate yourself to save, then create a financial plan for achieving your objective. It could be as simple as skipping Starbucks for a year or avoiding mall sales.

3.Paying only the minimum amount

If you have any outstanding payments on your credit card, do your best to pay these off as quickly as possible. Compound interest can easily bloat your small debt if you are not careful.

Say, you paid AED5,000 for a used car and paid for the purchase using your credit card. With an annual interest rate of 15 percent making the minimum payment AED150, it will take 173 months or more than 14 years to pay it off. At the end of this period, you would have paid over AED8,300 on interest rates alone.

That is more than your original debt if you think about it, so make an effort to eliminate your credit card debt as quickly as you can.

4.Missing payments

Not paying on time can be devastating to your credit score. It stays on your record for at least five years.

As much as possible, avoid buying anything that you cannot afford to pay in cash. By doing so, you avoid going over your budget and getting into credit card debt.

Find a way to make paying off your credit card debt automatic if you are the type who forgets. Perhaps you can open a bank account that automatically debits a certain amount to pay off your debt. This way, you won’t have to worry about forgetting your payments.

6.Lending your credit card

For some, having a credit card gives the holder a license to spend to its limits. You may be responsible with using your credit card, but you can’t say the same thing about your friend, girlfriend, boyfriend or significant other.

Treat your credit card as you would your bank account PIN: always keep it secured to yourself. Never let anybody else use it to avoid souring your relationship and ending up in bad debt.

Remember these common errors so you can avoid getting into trouble with your credit card company.

Why You Should Use Comparison Websites Before Signing Up for a Credit Card?

Why You Should Use Comparison Websites Before Signing Up for a Credit Card?

Whether you have great credit or are working hard to improve your credit score, you undoubtedly receive plenty of credit card information or application forms in the UAE. The potential offers and rewards are often extremely compelling, whether it is extra points for eating at your favorite restaurant or travel deals that are only available to certain cardholders. Credit cards also have many different terms, and these terms can become all too real if you are behind on a payment.

Therefore, when analyzing which credit cards in UAE to pursue, it is helpful to compare all of the offers that are available to you. This is much easier said than done. However, You may find yourself placing pieces of paper side-to-side or simply choosing a credit card that your friend or sibling likes.

Luckily, there is a better way. We believe that comparison websites are a true game-changer when signing up for a credit card. These websites make it extremely easy to compare different types of credit cards, thereby making it more obvious to you when making your final decision. Everyone from the first-time credit card holder to more experienced borrowers can find immense value from credit card comparison websites.

Below, you will find several key reasons why these websites are so important in today’s financial environment.

A Clean User Interface

As referenced above, credit card comparison websites make it easier and enjoyable to compare different credit card offers. Many websites, in fact, let you place credit cards side-to-side. They make it seamless for you to compare cards’ interest rates, annual fees, join fees, and more. This side-by-side layout is more effective than you may think, as it quickly gets to the crux of why certain cards are better for you than others. Instead of spending hours sifting through the paperwork and comparing the fine print, you can get a great first glance through credit card comparison websites.

Opening Your Eyes to New Opportunities

Credit card comparison websites aren’t just for comparing credit cards that you are considering. Arguably just as valuable (or even more valuable) is the fact that you can use them to discover new credit cards. For instance, if your most important factor is a low interest rate, you may use a credit card comparison tool to find a low-interest card that you haven’t even considered yet. This is just one simple example, but the discovery nature of credit card comparison websites makes them attractive to credit card applicants.

Helping You Maximize Your Points

In the example above, we explained how credit card comparison websites can help you find low interest card cards, thereby saving you cash if you end up making a late payment. But the flip side to this, however, is that credit card comparison websites can help you maximize potential incentives. If you enjoy traveling, for instance, you can find a new credit card that caters to travelers. Moreover, the website will help you understand how you can maximize your points so that you can rack up free flights or vacations. To put it another way, these websites are your trusted guide to get the most value out of a potential credit card.

A Godsend if You Have Bad Credit

Finally, credit card comparison websites can be especially helpful if you have bad credit and are looking for a new credit card. Repairing or strengthening a credit score is always time-intensive. That said, this shouldn’t mean that you can’t find a great credit card now. Credit card comparison websites can help you with this task. They can highlight some of the most attractive options for you—considering your financial situation.

Your Secret Weapon

These are just several key reasons why credit card comparison websites are so powerful. They are simple and easy-to-use, yet extremely powerful. They can help you stumble upon key insights about your spending goals and budget. They can even be a massive assistance in helping you more quickly save up for your dream vacation.

Whatever the case may be, we encourage you to check out these websites. Spend some time reviewing both the websites themselves and the credit cards that they let you compare. In sum, we  believe that credit card comparison websites can be your secret weapon as you work toward achieving all of your financial goals.

Soulwallet is a personal finance comparison portal in the UAE. With a team of “out of the box” thinkers and a deep understanding of the UAE consumer banking industry, we help customers make the best choices while shopping for financial products such as credit cards and personal loans in UAE.

Transactor vs revolver – What’s Your Approach with Using Credit Cards?

Transactor or a Revolver – What’s Your Approach with Using Credit Cards?

Plastic money is a popular and convenient way to pay for purchases. Credits cards and debits cards are often referred to as plastic money. Most people prefer them as they make transactions more convenient.

So whether you are purchasing a ticket to travel, shopping for groceries and everyday essentials, buying gadgets, clothing or other luxury treats, paying via a credit card is typically the first choice for most consumers. You can also order food, make purchases online, and book different transport needs effortlessly by using your preferred plastic card, thereby saving you a lot of time and energy.

If you are careful with your transactions, the use of a credit card makes your life hassle-free. However, if you make impulsive purchases beyond your means, using plastic money irresponsibly can put you into a vicious debt cycle.

So, what’s your style of using your credit card?

Do you use a credit card only for convenience? This means you never pay interest on the card and instead prefer to pay all dues on time. If that’s your approach, then the industry sees you as a “transactor” – a person who uses credit cards to make transactions easier and does not really utilize the “credit” facility offered by the card fully. Transactors enjoy benefits by accumulating points, miles and other rewards on their card transactions and hence effectively enjoy a “discount” on their purchases.

On the other side of the spectrum, many people use credit cards to make purchases without having enough funds to pay for them in full by the due date. Such users are known in industry parlance as “revolvers” as they “revolve” their balance outstanding across multiple billing statements.  “Revolvers” use credit cards to furnish today’s needs via tomorrow’s income. However, revolving your credit card balance can cost a lot of money in the form of interest, and this type of spending habits can severely strain your personal finances.

When does a revolving habit become risky for your financial life?

Banks typically give consumers a grace period of 21 to 30 days – the period between the end of the billing cycle and the payment due date. When you pay the outstanding amount in full before the due date, you won’t have to pay any interest.

For those who struggle to find the funds to clear their credit card balance each month, it’s easy to enter into a vicious cycle of debt.

When the payment is made after the due date, i.e. when you  “revolve” a balance, interest is calculated on an average daily balance method from the date you made the purchase.

If you continue to revolve a balance, there will be no grace period. You accrue daily interest on your balance outstanding and new purchases. So, your statement will then show substantial interest each month. In such a scenario, everything you purchase automatically becomes 30-40 per cent more expensive (depending on your particular card’s interest rate). This is a lousy buying strategy.

Moreover, for Personal loan seekers, this revolving balance can act as a disadvantage. It impacts your debt-to-income ratio (DTI) adversely, which in turn affects the credit score.

Revolvers that tend to accrue interest daily will have higher utilization rates and DTI ratios. The utilization rate and the percentage of the available credit you’re using are vital elements in determining a credit score.

For example, if your statement balance says Dh1,000, your credit report will indicate that you have a debt of Dh 1,000 that month. Now, if your credit card has a Dh1,000 credit limit, then the utilization rate here will be 100 per cent, even when you pay the bill in full.

So, here, to lower your utilization rate, you need to limit your purchases for the month or make payments early.

Whether you use the card and make payments as a revolver or transactor is not essential here. What you need to keep in mind is that for a better utilization rate, you must bring the total balance as low as possible and pay the remainder of the bill on time.

A higher DTI results in you paying extra money as extra interest charges in the long run (as these could impact your other loan interest rates in the future). Hence, a low DTI is vital for securing more favourable terms on a new loan or line of credit. It is also recommended you pay off all existing debts before submitting such a loan application.

The revolving habit overall imposes a high risk on your saving strategy and financial health. However, if you are revolving the balance at the time of an emergency, then carrying a balance for several months on a credit card is a better option to other even more expensive financing methods.

Even for other mindful larger purchases made with a credit card that is backed with a good plan to pay off the debt, it can be a wise decision. Remember, credit card companies will always prefer having revolvers because interest charged equals higher income for them. But, if you are looking for a robust financial situation, aim to be a transactor and always pay your credit card balance in full each month.

 

Good Credit Score Means Good Financial Health – Understanding How Credit Score Works can Help You Save Thousands of Dirhams

Credit reports and scores are essential to financial health of any economy. Its primary use is to help financial institutions use the information provided in the report to assess the credit standing of an individual prior to issuing individuals any credit products (credit cards, personal loans and so on).

Al Etihad Credit Bureau is the entity which provides credit reports to consumers and financial institutions in the UAE.

As an individual it is beneficial to have a good credit score as this will not only ensure that your chances of getting a credit card or loan (personal loan, auto loan, home loan) etc. are increased but, almost more importantly can help you save money as banks frequently give better terms (lower interest rates, higher loan amounts etc.) to individuals with better credit scores.

In this article we will help you better understand credit reports.

Components of a Credit Report

Financial Liabilities – Financial institutions are required to provide details of credit facilities such as credit cards, personal loans, mortgage loans etc., to the UAE Credit Bureau. Details such as assigned credit limits, utilized limits on credit cards, payments made, delayed payments, returned/bounced checks, loan amounts issued, outstanding balances, age of the loan/credit card, active status, police case history and so on are some of the key data points shared. In addition, the below details are also shared with the credit bureau:

Employment Details: Employer Name, Income, Date of Employment are a few details pertaining to employment

Addresses: Residence address, emirate, contact details including mobile numbers and email ids.

Personal Identification – Emirates Id number, Passport Number, Date of Birth etc.,

The Al Etihad Credit Bureau (AECB) manages the process of collating the information received from all financial institutions (as well as some other non-financial entities such as telecom and utilities providers) and summarizing this at an individual customer level.

These details are structured in a systematic and easily readable format which the financial institutions can access in assessing the credit worthiness of potential customers.

What is a credit score and why is it important?

Credit score is a three- digit number which is assigned by the credit bureau based on various variables such as number of loans, repayments, delayed payments, credit utilization and so on. Credit scores range from 300 to 900, higher the better from a financial health perspective.

The credit score is an indicator of a customer’s financial profile and it is important to note that quite a few banks have moved to offer credit score-based features (interest rate, loan amounts etc.) to their customers. This means you will get more beneficial terms the higher your credit score .

So, what is the mantra to maintain a healthy credit score?

Below are some simple disciplined practices one needs to follow:

  • Do not hold too many credit cards. Find out the best credit cards for “You” and stick with it. Close the ones which are not suitable for you or you carry but don’t use too often. Use Soulwallet’s “Best Fit Credit Cards Tool” to find out how good your credit card isyou’re your individual spend patterns and other requirements.
  • Ensure payments are made on time. And whenever possible, in full. This is the most important aspect and has a significant weightage in one’s score. Missing payments is a huge no-no and will definitely adversely impact your credit score. Remember the golden rule – “only borrow what you can afford to repay”!
  • Avoid going over the credit limiton your credit card.
  • Try and stay below 40% of your credit utilization. If you have a credit limit of AED 10,000 and your current credit card balance outstanding is AED 4,000, your utilization rate is 40%. The lower the better.
  • Keep copies of your bank clearance letters for records, there are possibilities that one might have to provide them to have the details amended (if they still show up on the credit report).

Please note – credit scores are not carved in stone, it is a dynamic and ever-changing variable, updated periodically when inputs are received from banks and financial institutions.

Credit scores take a significant time and effort to improve and, in this case, we would clearly recommend that prevention is better than cure.

How and where can I get my credit report?

For individuals the best recommended option is to download the AECB (Al Etihad credit bureau) app on the mobile phone via Google play or the IOS App store and download the report or score. Note, the charges are much lower to download the report online rather than by visiting an AECB branch. Click here  to find more details.

Takeaway

Soulwallet strongly recommends you to compare products through a neutral and unbiased comparison site before you make a financial decision which can be as simple as signing up for a credit card in UAE.

Most UAE residents at some point or the other will need to explore options to avail credit facilities from a financial institution. The reasons could be as simple as managing to pay an annual school fee or to cover an unexpected medical expense. Having a good credit score can not only make the process of getting a loan much simpler but can also potentially help one save thousands of dirhams (a simple example is the money saved through a lower interest rate offered on your personal loan in UAE based on a good credit score).