Credit card reforms and balance transfers
Since the start of 2019, new rules around the way credit card limits are determined by providers came into effect. These reforms stipulate that someone applying for a new credit card or credit limit increase would be assessed on their ability to pay off the entire credit limit over a period of three years.
How does this impact you?
When you apply for a new credit card you may not be approved or you might be approved for a lower credit limit. This could also impact the amount that you can move to a new card via a balance transfer. The amount of debt you can move from one card to another is determined by your credit limit, typically you’re allowed to transfer between 70% and 100% of the new card’s credit limit.
In addition to this, the new credit card provider is also required to assume that you are making repayments on existing credit cards that are sufficient to repay the limit— including interest – in three years (rather than the minimum repayment amount required under those contracts). This approach seems to make the new credit card provider consider the possibility that you will hold on o your existing credit card and reach their credit limit.
An ASIC report from 2018 found that in 15.7% of cases, consumers increased their debt by more than 50% after using a balance transfer, and these reforms seem designed to address that.
What can you do now?
If you have a high credit limit on your existing card or multiple cards, these reforms could make it hard to obtain a balance transfer for the amount you require. Potential ways to address this are:
- If you have not reached the limit of the card you are transferring the balance from, you could request that your card provider decreases you limit
- Reducing the limits, or cancelling any credit cards that you don’t plan on using
- Paying down as much credit card debt as possible before applying for a balance transfer