It can be a sound idea to transfer balances from credit cards with high rates to a new card that offers a super-low rate on balances transferred from other accounts. But make sure you understand what to look for.

Pay attention to how long the initial rate lasts. Be aware that not everyone will qualify for the lowest rate advertised and your introductory rate could be higher. Know what the regular rate will be once the introductory rate period is over and if that low rate will apply to new purchases as well or only to the balance transfers.

Is the special rate for initial transfers only? If this is the case, then only the accounts specified when you first apply for the card qualify for the special low-rate and subsequent transfers may be treated as cash advances - in which case you could pay a hefty cash advance fee and a higher rate of interest.

Check into the late-payment and over-limit fees. Will a late payment cancel the low-rate and make your balances subject to a higher interest rate? Some card companies will raise your rate even if you are late making payments on another credit card account.

If you do transfer balances to a new card, avoid the danger of late-payment fees on the old account by continuing to pay on the old account until you have proof it is at a zero balance. Then you may cancel it and close the account.

When a creditor looks at your credit report there are certain factors that will influence their decision about extending credit to you.

Payment History: Do you pay your bills on time? One late payment in two years is not going to make a huge difference but a pattern of late payments will negatively affect your credit rating. Payments that are consistently 30 days overdue will lower your credit score more than any other factor.

Credit Applications: Your credit report will show who else has requested to view your report. If you have applied for credit too many times, the multiple inquiries can lower your score. Keep credit card applications to a minimum, apply only for those accounts you really want and be careful about how many accounts you have open. It is better to have long-standing accounts that are paid on time than to have multiple accounts with shorter histories.

Balances: On average, it is best to never utilize more than 30% of your available credit. Having “maxed-out” accounts will negatively affect your score.

You may be surprised to learn that income is not a major factor in determining your credit score. If you have a large income but a history of late payments, your score will be lower than if you had a moderate income and a consistent payment history.

The three national credit reporting agencies use a formula known as FICO, named for Fair Isaac Corp., to calculate your credit score. The lowest score is 300, the highest 850. A score of 720 or higher will get you the best rates. A low score can mean higher interest rates or denial of credit.

Anatomy of a Credit Score

35% - Payment History

30% - Outstanding Debt

15% - Length of Credit History

10% - Number of Inquiries on your report

10% - Types of Credit you have

Because the information used to calculate your credit score is gleaned from your credit report, you should obtain a copy of your credit report from each of the three national CRAs and review them for mistakes and incorrect information. If you find errors, report them to the credit reporting agency.

AnnualCreditReport.com

A credit report records all of your credit activities such as loans, mortgages, and credit card accounts. It keeps track of your balances and payment history. This information is gathered by a Credit Reporting Agency (CRA) and can be requested by prospective creditors when you apply for credit. Be aware that prospective employers and landlords may also request credit information.

The credit report will contain personal information such as your name, date of birth, social security number, your employer(s)and your current and past addresses. It will list all your credit accounts and your payment history over the past two years. Other information such as court records of judgements and liens against you and bankruptcy filings will also show. Additionally it will list the names of anyone who has requested your credit report in the last year.

Most credit information will remain on your credit report for seven years but a personal bankruptcy will show on your report for 10 years.

It is a good idea to know what information is on your credit report. By law you are entitled to receive one free copy of your credit report every 12 months from each of the three main credit reporting agencies:

Equifax

Experian

Trans Union