5 ways a 0% APR credit card could actually hurt your credit

There are many good reasons to apply for a zero-interest credit card. The best 0 percent intro APR cards offer between 12 and 21 months of zero interest on purchases, balance transfers or both, providing plenty of time to pay off balances before the 0 percent intro APR expires. A credit card that features zero interest for a year or more can be an excellent way to fund a large purchase, manage current debt or pay down old balances.

But there are ways a 0 percent credit card could hurt your credit. If you’re not careful, you could end up with more debt than you started with — and a lower credit score. Review five ways a 0 percent intro APR credit card can hurt your credit — and how you can prevent it.

Temporary credit score dip

In most cases, applying for a new credit card means a hard inquiry on your credit, which will cause your score to dip. However, the loss of points is minimal, and the effect is only temporary. Credit scoring services like FICO and VantageScore use the number of hard credit inquiries to gauge whether you’re applying for too much new credit at once. As a good rule of thumb, you should wait at least 90 days before applying for a new card, and then you shouldn’t worry about the impact on your credit score.

Higher credit utilization ratio

If you use the 0 percent intro APR period to run up higher balances than usual, you might end up with a high credit utilization ratio that hurts your credit score. Credit scoring services look carefully at the ratio of your current balances to your available credit, so it’s a good idea to keep your credit utilization ratio below 30 percent whenever possible.

This means that if you have $10,000 in available credit across all of your credit cards, you should try to keep your total credit card balance below $3,000. Otherwise, you might find it more challenging to maintain a good credit score.

Even though some rewards credit cards feature solid intro 0 percent APR offers, it’s important to stay focused on paying down your debt during the intro period instead of chasing rewards.

Learn more: Is it better to pay off your credit card or keep a balance?

Balance carry-over

Carrying a high balance 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 could create a long-term problem.

Founder of BeFluentInFinance.com Andrew Lokenauth warns against the “‘free money’ mindset” that can set in with a 0 percent intro APR card, which can lead to “overconfidence.”

Once your zero-interest period ends, any unpaid balances will begin to accrue interest at the card’s regular interest rate. The current average card interest rate is about 20 percent. These interest charges become a part of your credit utilization ratio too, potentially lowering your credit score month after month. Since credit card interest compounds, it might become even more difficult to pay off your outstanding balances.

Jessica Wright, owner of Buy My Home Chattanooga, has had experience with clients who used the intro APR offer when purchasing a new home, only to find that they could not pay off the balance when the intro period ended. “One homeowner I dealt with found herself caught when the 0% period ended and her minimum payments doubled. That is an absolute budgeting disaster,” Wright says.

To avoid unmanageable debt, make sure to not overspend and don’t fall into the ‘free money’ trap when using a 0 percent intro APR card. You’ll be on the hook for any balances remaining at the regular ongoing APR as soon as the intro period ends.

Increased minimum payments

As your credit card balances increase, your monthly minimum payments also increase, and you might find yourself in a situation where you can no longer afford the monthly minimums. You could even wind up missing a credit card payment, which will negatively impact your credit score. Adam Garcia, CFP and founder of The Stork Dork, adds that a missed payment during the intro APR period can also result in the intro APR being revoked.  “… create a strategy to eliminate the balance before the promotional period [ends] and always set up autopay so no payments will be missed,” Garcia recommends.

If you can no longer meet your minimum payments, the best thing you can do is contact your credit card issuer and ask for help. Your issuer may offer a lower monthly payment or guide you toward a hardship program to help you manage your debts and finances.

Card default

If you accumulate high balances, miss multiple monthly payments and can no longer manage your debts, you might end up in credit card default.

Defaulting on your debt has a lasting negative impact on your credit since the derogatory marks that appear on your credit reports after you default could stay there for as long as seven years. To avoid this, consider seeking debt relief as soon as you find yourself in a position where you can no longer make payments on your credit cards.

The bottom line

Nearly all the ways an intro 0 percent APR credit card can hurt your credit come down to how you manage your credit card balance; responsibly using this type of card can also provide a helpful financial advantage without the common pitfalls associated with it.

Garcia advises, “By staying disciplined and monitoring your spending, you can use these cards effectively without jeopardizing your financial health.” Lokenauth adds, “Remember: That 0% APR is temporary, but the consequences of misusing it can last for years.”

Just be sure to not overspend and keep your total credit card balance below 30 percent of your available credit. And pay off as much of your credit card debt as possible before the introductory APR offer expires.

On the other hand, if you’re unsure whether you’ll be able to pay off your credit card balances on time, you should carefully weigh the pros and cons before applying for a new 0 percent intro APR credit card.