Credit Cards

Balance transfer credit cards: What should you do if given a low credit limit?

A balance transfer can be an excellent way to cut the interest payable on existing credit card debt. But what should you do if given a small credit limit? NimbleFins takes a look.

If you've existing credit card debt and you shift it to a 0% balance transfer card, you'll no longer have to pay interest on your balance (for the length of the 0% period). However, the amount of debt you're allowed to transfer will depend on your credit limit.

So what should you do if, after applying for a new balance transfer credit card, you're given a low credit limit? Let's take a look.

How do credit limits apply to balance transfer credit cards?

When you apply for any type of credit card, lenders will determine your creditworthiness. This is because when you get a credit card, you have access to credit. As a result, lenders will want to assess the likelihood of you repaying what you owe. This is done by reviewing your credit score.

From a lender's point of view, being choosy with customers reduces the risk of taking on customers who'll miss repayments. This is why the best balance transfer credit cards—especially those with very long 0% deals—will usually be reserved for those with decent credit scores. Yet, it's not just 0% lengths that lenders can be picky with.

If you've a less than stellar credit score, some balance transfers will restrict the amount of debt you can transfer by giving you a low 'credit limit'. Your credit limit essentially refers to the amount of money you can borrow on any particular credit card. It's very important to stick within this limit, as exceeding it could leave you with a nasty mark on your credit file.

When it comes to balance transfer credit cards, you're typically allowed to shift about 95% of your total credit limit.

How can you improve your chances of being accepted for a decent card?

If you're worried about getting accepted for a decent 0% balance transfer card, it's worth checking to see if you pre-qualify for any cards. While not all cards will offer pre-approval, if you are pre-approved for a balance transfer card, you'll definitely be given the advertised 0% length if you go ahead and apply. Not only will this give you certainty that you'll be accepted for a card, but it also reduces the chances of making lots of credit card applications following successive rejections. Applying for lots of cards is something to avoid, as multiple 'hard' credit searches in a short space of time can have a negative impact on your credit file.

The easiest way to see if you can be pre-approved for a card is to use a balance transfer eligibility calculator.

Note: While pre-approval will often show you a guaranteed 0% length, pre-approval rarely gives an indication of credit limits. As a result, it's very difficult to determine what credit limit you're likely to be given before you apply.

What should you do if given a low credit limit on a balance transfer card?

Say you have £8,000 worth of existing credit card debt and you're paying interest on it. You then apply for a balance transfer card with the aim of moving your debt to 0%. After applying, you get good news—you're accepted. However, you soon discover you're given a credit limit of £5,000—less than your total credit card debt.

In such a situation, it's really important to make the most of what you're given. In our example, a £5,000 credit limit means you'll be able to shift over £4,750 or so. Shifting over this debt to your new 0% card should be your first move, as well as setting up a direct debit for the minimum monthly payment. If you don't do this, you could lose the 0% deal entirely!

Once you've moved over as much as you can to your new card, you'll have roughly £3,250 to repay on your old card. With this leftover sum, you can either focus on clearing it as soon as possible, or take your chances with applying for an additional balance transfer card.

Top tip: You can hold more than one balance transfer card!

Remember, while multiple credit card applications is probably best avoided (in order to protect your credit file), there's nothing stopping you holding more than one balance transfer card. If you do apply for a second balance transfer card because of a low credit limit, and your new card gives you a credit limit that covers your remaining debt, you can simply transfer the rest of your balance to it. This means your debt will be held on two 0% balance transfer cards, so you won't have to pay any interest for the duration of the interest-free periods. Just ensure you make at least the minimum monthly repayment on both cards to keep the 0% deals alive.

If you do manage to successfully apply for two cards, it's very possible that one card will offer a shorter 0% period than the other. In this case, it's worth focusing on cutting down debt on the card with the shorter 0% period first.

What if you can't clear your balance transfer card before the 0% period expires?

If you aren't able to fully clear your debt on your balance transfer transfer card before the 0% period ends, you'll have to start paying interest. The interest rate on balance transfer cards once a 0% deal is up is likely to be the region of 30-40%!

While you should always aim to fully clear your balance before the interest-free period expires, if you aren't able to do this, then you can apply for another 0% balance transfer card. If you do get accepted for a new card, you'll get a brand new 0% period.

However, a word of warning. Balance transfer deals may not be as generous in future as they are today. Never assume you'll have this option if you're currently sitting on a 0% credit card with a hefty balance. It's almost always a good idea to clear credit card debt as soon as possible.

Are you looking for a balance transfer card?

To see a list of the best deals available right now, take a look at our best balance transfer credit cards guide.

Karl Talbot

Karl is a personal finance expert who specialises in writing about savings accounts, credit cards and cheap personal loans. Karl has worked for a number of personal finance publications including The Motley Fool and MoneySavingExpert.