When you apply for a balance transfer credit card, both the credit limit and the amount of debt you want to move are subject to approval. In some cases, you could be approved for a balance transfer credit card with a credit limit that is less than the debt you wanted to transfer onto it. While you could still get a balance transfer onto the new card, you’d also have a balance on your old card.
There are three main options you can consider if your balance transfer debt is more than the credit limit you're approved for on a new card:
Cancel the application. If you haven’t received or activated the card, you can call the issuer and ask them to cancel the application. There should not be any charge for this.
Cancel the card. You can cancel your new card at any time after it’s been activated. But make sure you do this before the balance transfer has been processed. Also note that if the card has an annual fee, you may need to pay it before the account can be closed.
Go ahead with the transfer. If you’ve got a balance transfer credit card with a competitive introductory 0% interest offer, then you may still want to use it to pay down whatever debt can be moved to the card. Just remember to budget for repayments on your existing card and, if possible, aim to pay off the debt that’s still being charged interest first to help keep your costs down.
So before you apply for a balance transfer credit card, it’s a good idea to think about what factors could lead to only part of your balance transfer being approved – as well as what to do if that happens.
Why would only part of my balance transfer be approved?
Here are some of the major elements that could influence your balance transfer outcome.
Your credit history and credit score are assessed for both the credit card and the balance transfer. In some cases, your credit history could be acceptable for the card but not for a credit limit that would be high enough to support your balance transfer debt – particularly if you have a poor or bad credit score.
In Australia, a bad credit score is any number between 0 and 509. This score would usually indicate recent issues with managing debt. For example, you may have applied for a lot of credit in a short period of time, defaulted on an account or filed for bankruptcy.
As a general guide, you’re more likely to have success with credit applications if your credit score is within the Good, Very Good or Excellent brackets, which range from 622 to 1,200. These scores indicate you’re able to manage credit responsibly by making payments on time and avoiding issues such as default accounts or frequent applications.
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Income and employment
Credit card providers use details of your income and employment to help determine your credit and balance transfer limit. Earning a low income, only working casually or part-time and even changing jobs could all have a negative impact on your balance transfer credit card application.
However, it is less about the absolute numbers and more about how your income compares to your expenses. When you apply for a credit card, you will have to provide details of all of your sources of income as well as your expenses (rent or mortgage payments, childcare, groceries, etc). If you’re spending the majority of what you earn (or more), it will be looked upon less favourably than if you were saving every month.
How can I find out why my credit limit is lower than my balance transfer amount?
If you have been approved for a balance transfer credit card with a limit that’s lower than the debt you want to transfer, you can call the bank or credit card company and ask them for more information about this decision. While they may not be able to give you the full details, it could help you decide what to do next.
As well as your income, the amount of debt you already have can affect the credit limit you get on a new credit card. So even if you apply for a balance transfer because you want to pay down your debt, it could be difficult to get approved for the whole amount if what you owe is high with respect to your income.
But there is a silver lining: if you have existing debt, your creditworthiness can improve when you are making payments towards it. This is because your repayment habits indicate that you will repay what you owe.
Example: Is getting a partial balance transfer worth it?
Let’s say you owe $5,000 on a credit card with an interest rate of 19.99% p.a. and can afford to pay $400 off it per month. If you stuck with this card as it is, it would take 15 months to pay off the debt and cost you $653.35 in interest.
Now, say you’re approved for a balance transfer credit card offering 0% p.a. for 18 months but can only transfer $3,000. If you went ahead with the transfer, you could split up your $400 payment between the cards to help save on interest.
For instance, if you paid $300 per month off the card with the $2,000 debt and interest rate of 19.99% p.a., it would take around 8 months to clear the debt and cost you $137.91 in interest. During this time, you’d also be paying $100 per month off your new balance transfer card’s debt. So after 8 months, the balance on that card would be $2,200 and you’d still have 10 months of the 0% interest rate.
If you then continued to pay $400 per month on the debt, it would take you 6 more monthly repayments to clear the debt. So in this scenario, you’d enjoy a 0% p.a. interest rate on your $3,000 balance transfer for the whole time before you paid it off.
Even if you aren’t approved for the full $5,000 balance transfer, transferring the $3,000 you’re eligible to transfer to a new 0% p.a. card saves you $515.44 in interest and you’d be out of debt one month sooner.
What else do I need to know about balance transfers and credit limits?
Keep these factors in mind when you’re comparing credit cards or applying for a balance transfer, so you can find an option that suits your needs.
Applying for another card. If your balance transfer card is approved with a credit limit that’s lower than the debt you want to transfer, you could consider cancelling that card and applying for a different one. But keep in mind that applying for several cards in a short span of time can negatively impact your credit history and, in turn, may make it harder to get a balance transfer approved.
Maximum balance transfer amounts. Depending on the credit card, you could be able to transfer a maximum of 70-100% of your approved credit limit. So in some cases, you may not be able to transfer all of your debt even if it’s equal to, or more than, your approved credit limit.
Credit cards with high credit limits. There is a range of credit cards that offer high minimum credit limits of say $6,000 or $15,000 (subject to approval). If you have a lot of debt, you could look for balance transfer offers on one of these cards. Just make sure you meet the application requirements before you apply because these cards also typically require high minimum incomes.
While it’s ideal to get approved for your entire balance transfer, there are times when the debt you have could be higher than your card’s approved credit limit. So if that happens, make sure you weigh up your options to decide if the balance transfer will still suit your goals.
Tip: Consider a personal loan to pay off some or all your debt
If you’re looking for a balance transfer but your new credit limit will not cover your entire debt, you could also look at getting a personal loan to cover the debt left over on your original credit card. This could help you save on interest as you pay off the balance, as personal loans typically offer lower standard interest rates than most credit cards.
A personal loan could also be an option if you’re not approved for a balance transfer, or if the introductory 0% p.a. interest period has ended and you’re faced with paying a higher, reverted rate on your new card.
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Updated January 18th, 2020
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