For those planning to purchase big-ticket items soon, a 0% intro APR credit card could be an appealing way to finance them. These cards come with a period of 0% interest, sometimes for as long as 15 to 21 months, during which you won't incur interest charges on unpaid balances. This gives you plenty of time to pay off what's owed before the 0% intro APR period ends and the high interest charges commence.
That said, charging large purchases to a 0% intro APR credit card isn't without its risks. You may not be paying high interest, but you could be taking a hit to another part of your finances -- your credit score. If you need good credit right now, a 0% intro APR credit card may not be the best decision. Here's why.
Large purchases can weigh down your credit utilization
Credit utilization measures how much credit you're using versus how much is available to you. For instance, if you have three credit cards with $20,000 in available credit, a balance of $5,000 would mean you've used 25% of your total credit. While it's advisable to keep your credit utilization below 30%, higher FICO® Scores tend to belong to those who have even lower utilizations.
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.
For instance, if you're using $1,000 of your $20,000 in available credit, your credit utilization would be 5%. If you added a credit card with a $5,000 credit limit and charged up to the limit, you would be using $6,000 of $25,000, which is now 24%. Quadrupling your credit utilization in this way could cause your score to drop by double digits.
Expect a minor credit score drop from the hard inquiry
Whenever you apply for a new credit card, you authorize a hard inquiry on your credit report. Hard inquiries stay on your report for two years and could cause your score to drop by 5 to 10 points. The dip is temporary, but if you're applying for multiple credit cards in a short period, it could be more than you're willing to stomach.
Make a plan to avoid setting yourself up for more damage later
Finally, it's important to remember that the 0% APR period doesn't last forever. When it ends, your purchases will start accruing interest at your card's regular APR. Your monthly payments could be substantially higher, which could overwhelm you and risk putting you into credit card debt.
One way to avoid debt is to make a repayment plan before you open the card account. Knowing how much you can pay per month, as well as the date when you'll have the card paid off, could go a long way toward helping you improve your credit score. For instance, if you're charging $5,000 to a card with 15 months of 0% interest, you should pay at least $350 monthly to pay off the balance before the period ends. If you can't do that, you may want to reconsider the purchase.
All in all, credit cards with 0% intro APRs can be a smart tool to finance purchases, especially if you're in an emergency situation. Just proceed with caution and be prepared for a dip in your credit score. As long as you pay off what you borrow, your score will rebound -- and you won't have to lose money to high-interest debt.
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FAQs
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.
How does a 0 APR credit card affect credit score? ›
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.
Do 0% credit cards build credit scores? ›
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.
Does 0% utilization hurt 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.
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.
Is 0% APR actually 0? ›
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.
What is a good credit score for 0% APR? ›
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.
Why did my credit score drop 100 points after opening a credit card? ›
When you open a new credit account, it lowers the overall age of your credit. In addition to the age of credit, opening up any new credit account generally requires a hard inquiry, which could ding your credit score a few points temporarily. After about two years, the inquiry should drop off.
How long does it take to build a good credit score from zero? ›
History isn't instant. If you haven't used credit before, it usually takes at least six months to generate a credit score – and longer to earn a good or excellent score.
Will my credit score go up if I pay off my credit card in full? ›
Paying off your credit card balance every month is one of the factors that can help you improve your scores. Companies use several factors to calculate your credit scores. One factor they look at is how much credit you are using compared to how much you have available.
It's a good idea to pay off your credit card balance in full whenever you're able. Carrying a monthly credit card balance can cost you in interest and increase your credit utilization rate, which is one factor used to calculate your credit scores.
What is considered a good credit score? ›
Although ranges vary depending on the credit scoring model, generally credit scores from 580 to 669 are considered fair; 670 to 739 are considered good; 740 to 799 are considered very good; and 800 and up are considered excellent.
What habit lowers your credit score? ›
Making a Late Payment
Every late payment shows up on your credit score and having a history of late payments combined with closed accounts will negatively impact your credit for quite some time. All you have to do to break this habit is make your payments on time.
Why is 0% APR not good for your credit? ›
Plus, once your card's 0% APR promotional period ends, the regular interest rate will kick in. And if you're carrying a balance once the interest-free period ends, you'll owe interest on the remaining debt which, if unpaid, can negatively affect your credit score.
Can you buy a car with a credit card with 0 APR? ›
Interest rates
One way to lower the cost of buying a car with your credit card is to take advantage of 0% intro APR offers on purchases. These promotions are typically less than two years, so they have a shorter term than most car loans.
How many credit cards are too many? ›
How many credit cards is too many or too few? Credit scoring formulas don't punish you for having too many credit accounts, but you can have too few. Credit bureaus suggest that five or more accounts — which can be a mix of cards and loans — is a reasonable number to build toward over time.
Are 0% credit cards worth it? ›
Key takeaways. A 0 percent intro 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.
Does a 0 balance credit card hurt your credit? ›
A zero balance on credit card accounts does not hurt, but it certainly does not help increase a credit score either. Ask first if you really need to borrow as lenders are out to make a profit on the funds they lend you.
What happens when 0 APR runs out? ›
When your intro APR ends, your credit card's regular APR will kick in on any remaining balance and new balances. It's important to know when your promotional period ends so you can work on paying off your balance beforehand and avoid being surprised by mounting interest on a residual balance.
