Why Can't Capital One Allow Balance Transfers Between Credit Cards?
Total confusion surrounded when I tried to transfer the remaining balance from one of my Capital One credit cards to the other. While I was able to move the credit limit a little while back, the recent attempt to move the remaining balance resulted in an error message indicating the service is no longer available. Thisarticle shed light on why this might be the case.
Why Banks Allow Balance Transfers Between Cards
Banks provide an option for customers to transfer balances between cards if they maintain separate exposure and a consolidated report for these transfers. This is a way for them to manage credit risk and share exposure effectively. However, for most banks, including Capital One, maintaining a common exposure across all cards is the norm. This helps in simplifying various financial operations and risk assessments.
Reasons Behind Capital One's Restriction
There are several reasons why no credit card company would want to allow transfers from one credit card to another within the same company. Here are some key points:
Credit Card Companies Prefer Transparency and Control
Most credit card companies prefer to know how their customers are using their credit products. Allowing a customer to use one credit card to pay another would blur the transparency and control. Credit card companies want to ensure that you have the financial capability to make minimum monthly payments, which defeats the purpose if you can shift balances without it being reflected in your total debt.
No Profit Motive in Shifting Balances
From a profit perspective, credit card companies have a specific goal: to shift debt from other companies to themselves. They earn money from interest and fees. Allowing a customer to transfer a balance to a card with a lower interest rate would defeat this goal. The lower interest on the transferred balance means less income for the card issuer in the form of interest and fees.
Offering Low Interest Balance Transfer Checks
Customers with very good credit might be offered low-interest balance transfer checks or the option to deposit checks into a bank account. This is typically done based on the customer's credit score and financial reliability. The bank can then use this as a tool to reduce customer churn and promote their own products.
What Should You Do?
If you are considering a balance transfer card, you shouldn't expect to transfer balances from one card with interest to another card with no interest. Most balance transfer cards come with an introductory period of 0% interest, but after that, the interest is typically higher than the current market rate. Therefore, transferring balances without earning interest would not be beneficial.
If you want to consolidate balances between two cards that both carry interest, here are some considerations:
Financial Assessment
Ensure that you have the necessary income to make monthly payments. Otherwise, shifting balances could lead to even more debt and financial strain. It’s essential to maintain transparency and ensure that any balance transfer aligns with your overall financial plan.
Understanding these reasons can help you make informed decisions when managing your credit cards and balance transfers. Whether you're looking to consolidate debt or manage your finances more effectively, it's crucial to keep these financial considerations in mind.