Can I Use a Credit Card to Pay Another Credit Card?
Explore the various ways you can use one credit card to pay another, understanding the associated costs and crucial credit score implications.
Explore the various ways you can use one credit card to pay another, understanding the associated costs and crucial credit score implications.
It is possible to use one credit card to pay another, but this process involves specific financial mechanisms rather than direct payment. These methods come with distinct fees and interest implications. Understanding each option’s function and financial consequences is important, requiring careful consideration of associated costs and effects on financial health.
A balance transfer involves moving debt from one credit card to another, often to a new card with a promotional 0% APR. This strategy aims to reduce interest accrued on existing debt, allowing faster principal repayment.
The process begins by identifying a credit card with a balance transfer promotion. After selecting an offer, apply for the new card. If approved, the new card issuer will require information about the old credit card account, including account number and transfer amount. Transfers can take days to weeks; continue payments on the old card until confirmed.
Balance transfers include a fee, typically a percentage of the transferred amount. Fees range from 3% to 5% of the total balance, or a flat dollar amount, whichever is greater. For example, a $5,000 transfer with a 3% fee would incur a $150 charge, added to the new card’s balance.
The benefit lies in the introductory 0% APR period, lasting 15 to 21 months. After this promotional period concludes, any remaining balance will be subject to the card’s standard variable APR, which can be higher. Introductory APRs apply to the transferred balance, but new purchases on the balance transfer card may not share the same promotional rate and accrue interest immediately.
A cash advance allows you to borrow cash directly against your credit card’s line of credit. This provides immediate funds to pay another credit card bill. Cash advances can be obtained through various means, including withdrawing cash from an ATM using your credit card and PIN, requesting funds directly from a bank teller, or using convenience checks from your credit card issuer.
Cash advances are a costly way to access funds due to fees and interest structures. A cash advance fee is charged, ranging from 3% to 5% of the advanced amount, or a flat fee (e.g., $10), whichever is higher. For instance, on a $100 advance, a 5% fee would be $5, but if the minimum fee is $10, you would pay $10.
Interest on cash advances begins accruing immediately from the transaction date, with no grace period, unlike typical credit card purchases. The APR for cash advances is also higher than the standard purchase APR, often 20% to 30% or more. Upfront fees and immediate, higher interest accrual make cash advances an expensive option for managing debt.
Third-party services allow payments, including credit card bills, using another credit card. These services act as an intermediary, processing the payment on your behalf. The service charges your chosen credit card for the payment amount. Then, the service sends payment to your other credit card company, often via electronic funds transfer (ACH) or physical check.
These services impose fees for facilitating transactions. Fees range from 1.5% to 4% of the total transaction value. Fees vary based on card type (e.g., credit vs. debit) and online or in-person processing. Confirm if the receiving credit card company accepts payments from such services, as not all issuers recognize these methods. Some services may also have transaction limits.
Using a credit card to pay another impacts your credit standing. Credit utilization, the percentage of available credit used, is a factor in credit scoring. Financial experts recommend keeping your credit utilization ratio below 30% to maintain a healthy credit profile; exceeding this threshold can negatively affect your credit score. While a balance transfer moves debt from one card to another, it does not reduce your overall debt. If the transferred balance consumes a large portion of the new card’s credit limit, or if other cards remain highly utilized, your overall credit utilization could still be high, impacting your score.
Applying for a new credit card, like a balance transfer, results in a hard inquiry on your credit report. A hard inquiry occurs when a lender checks your credit report for an application, causing a small, temporary dip in your credit score, by fewer than five points. Hard inquiries remain on your credit report for up to two years, though their impact on your score diminishes after 12 months.
Payment history is the primary factor in credit scoring, accounting for about 35% of a FICO score. Making timely payments on all accounts, including new cards or cash advances, is important for maintaining a positive payment history. Conversely, late or missed payments can harm your credit score. The overall debt owed also influences your credit score, contributing about 30% to a FICO score. Actions increasing total reported debt, like a cash advance adding to an existing balance, can signal higher risk to lenders.