Why a 0% APR Is Not Good For Your Credit (2024)

FAQs

Why a 0% APR Is Not Good For Your Credit? ›

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.

A 0% APR is not good for your credit if you overspend, as high credit utilization and missed payments hurt your credit score. If you end up carrying a balance from month to month after the 0% period ends, you will also owe expensive interest charges, making it hard to pay your bills on time and build credit.

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.

Avoiding interest is always a good goal, but zero-interest loans can lead buyers to overspend and come with a lot of strings attached. Carefully evaluate your purchase—is this what you intended to buy, and will you realistically pay off the loan within the given time?

The credit reference agencies that calculate your credit score – Equifax, Experian, and TransUnion – don't look at the APR you pay on credit cards or loans. It makes no difference to them whether you're paying 0% or 50%—although it does make a big difference to how much your debts cost you.

With zero percent financing, you're more likely to impulse buy. And since you feel like you're saving money with the 0% APR, it's easier for the salesperson to talk you into overspending on fancy upgrades and extra features you simply don't need (like extended warranties or gap insurance).

If you're disciplined to make on-time payments and pay off your balance before the intro period ends, then you will likely do well with a 0% APR credit card. However, if the 0% tempts you to overspend, you may face paying high interest charges if you're still carrying a balance after the intro period.

Yes, 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.

If you have a zero balance on credit accounts, you show you have paid back your borrowed money. A zero balance won't harm or help your credit. To find out how we got here, we have to understand what credit is and the history of credit agencies.

While achieving a CIBIL Score of 900 is technically possible, it is extremely rare. Scores above 760 are considered very good or exceptional, providing significant benefits such as lower interest rates and higher chances of loan approval.

Is 0% APR a trick? ›

“The 0% APR offer is often in lieu of certain rebates. Depending on your credit, down payment, and the term of the loan, it may be better to take the rebate instead of the zero interest rate.”

Zero interest offers can make you complacent

Last but not least, here's why 0 percent APR credit cards can entice you to carry debt: you know interest isn't accruing on your purchases, your transferred debts or both, so it's easy to become complacent and pay less each month than you should.

Credit cards with 0% interest on purchases can be a good way to spread cost and build up your credit score. For example, you could use one to book flights, pay for a holiday or cover the cost of home improvements and then pay it back in monthly repayments.

A 0% intro APR is a promotional interest rate typically offered to new credit card customers. It can apply to regular purchases, balance transfers or both. Once the introductory period ends, the variable APR for purchases and balance transfers applies to any unpaid balance.

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.

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.

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.

Key takeaways

A 0 percent intro annual percentage rate (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.

Credit cards with 0% interest on purchases can be a good way to spread cost and build up your credit score. For example, you could use one to book flights, pay for a holiday or cover the cost of home improvements and then pay it back in monthly repayments.

If you're carrying a balance once the 0% intro APR period is over, you'll have to pay interest on that remaining amount.