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
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.
How does 0% utilization affect credit score? ›
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.
Does 0% finance affect credit score? ›
Credit scoring models don't consider the interest rate on your loan or credit card when calculating your scores. As a result, having a 0% APR (or 99% APR for that matter) won't directly impact your scores. However, the amount of interest that accrues on your loan could indirectly impact your scores in several ways.
Is it bad to max out a 0 APR credit card? ›
Carrying a balance can negatively impact your credit score by increasing your credit utilization ratio. It is important to have a plan to pay off any balance before the end of the 0 percent intro APR period, and to make at least the minimum monthly payments on time.
What are the disadvantages of credit cards with an interest free period? ›
Costs of an interest-free deal
If you still have money owing after the interest-free period ends, you'll be charged interest. Interest rates can be as high as 26%. Retailers also charge fees on interest-free deals, which may be added to the amount borrowed.
Is zero balance on credit card bad? ›
To sum things up, the answer is no, it isn't bad to have a zero balance on your credit cards. In fact, having a zero balance or close-to-zero balance on your credit cards can be beneficial in many ways.
Is 100% credit utilization bad? ›
Having 100% credit utilization means that you have used all your available credit. Charging too much on your cards, especially if you max them out, is associated with being a higher credit risk. That's why running up your cards will lower your score.
Does using 0% APR hurt credit score? ›
This is where charging large purchases to a 0% intro APR credit card could cause some trouble. Sure, you may not pay interest for a limited period. But you'll bring up your credit utilization, effectively bringing down your score. The damage isn't permanent, but it could affect your personal finances in the short term.
Is 0 credit good or bad? ›
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.
What is the problem with 0% financing? ›
Zero-interest loans, where only the principal balance must be repaid, often lure buyers into impulsively buying cars, appliances, and other luxury goods. These loans saddle borrowers with rigid monthly payment schedules and lock them into hard deadlines by which the entire balance must be repaid.
If the borrowed money has a 0 percent APR, no interest will be charged on that money for a fixed period of time. Zero-interest credit cards, or 0 percent intro APR credit cards, allow cardholders to make payments with no interest on purchases, balance transfers or both for a set period of time.
When you borrowed $50 from your rich cousin? ›
QR Challenge: Personal Finance Review
| Question | Answer |
|---|
| When you borrowed $50 from your rich cousin, and then had to pay her back $60, what is the original $50 called? | principle |
| A high credit score gives you one main benefit. | low interest rate |
28 more rowsIf you use more than 30% of your credit limit AND the balance reports to your credit reports, your FICO scores will drop like a rock. If 90% of your credit limit is used AND reports, your scores will tank even further.
What is one disadvantage of a 0% interest balance transfer card? ›
Balance transfer fees can apply to transferred debt
If you plan to use a 0 percent intro APR credit card to consolidate high-interest debt, you'll likely owe a balance transfer fee that typically falls between 3 percent and 5 percent of the amount you transfer.
Should you pay off a 0% credit card? ›
Key points on 0% credit cards
When your introductory or promotional offer comes to an end, your remaining balance will be charged at the card's standard rates. To avoid paying higher interest rates, plan ahead and try to pay off your balance in full before the 0% offer ends.
What is the catch with interest-free payments? ›
Depending on the lender, you could be charged interest if you don't pay within a fixed time frame. Late or missed payments could incur fees or negatively affect your credit.
What is the minimum credit utilization to build credit? ›
A general rule of thumb is to keep your credit utilization ratio below 30%. And if you really want to be an overachiever, aim for 10%.
How does a credit card with no limit affect utilization? ›
Yes, a no-limit credit card can affect your credit score in two ways: credit utilization ratio and total debt. If the no-limit credit card has a $50,000 limit, and you spend $40,000, your credit utilization ratio on that card is 80%. This value is too high and it can affect your credit utilization ratio.
Does credit utilization reset after payment? ›
Every dollar you pay off reduces your credit utilization ratio and your total debt, which makes it a win-win scenario. Plus, paying off your balances means no longer having to pay interest on those balances.
Why is my credit score going down when I pay on time? ›
Using more of your credit card balance than usual — even if you pay on time — can reduce your score until a new, lower balance is reported the following month. Closed accounts and lower credit limits can also result in lower scores even if your payment behavior has not changed.
