How credit card balance transfers affect your credit score 

A balance transfer can be a useful tool for getting high-interest credit card debt under control, especially if you qualify for a card offering a 0% introductory APR. But if you’re thinking about transferring a balance, you might be wondering what it could do to your credit score.

Transferring a balance technically isn’t bad for your credit. The transfer itself isn’t what determines your score. Instead, actions associated with the transfer, such as applying for a new card, opening a new account, changing your credit utilization and making payments, can influence your credit.

That means you could see a small drop in your score initially, followed by the potential for a healthier credit profile as you pay down debt. However, the outcome largely depends on how you manage your accounts before and after the transfer.

Does a balance transfer affect your credit score?

A balance transfer can affect your credit score, but the impact depends largely on whether you’re opening a new credit card and how you manage your balances and payments afterward.

The short answer

Yes, a balance transfer can affect your credit score, but not necessarily for the reason you might think.

Moving debt from one credit card to another doesn’t make the debt disappear, nor does the act of transferring it automatically damage your credit. Instead, it’s what happens around the transfer that matters.

For instance, applying for a balance transfer credit card may result in a hard credit inquiry, and opening the card adds a new account to your credit report. Both can potentially cause a temporary decline in your credit score.

On the other hand, using your new card to steadily pay down your debt while making every payment on time could benefit your overall credit profile in the long run.

What determines the impact?

Several factors can determine whether a balance transfer ultimately helps or hurts your credit, including:

• Applying for a new card: A credit card application typically generates a hard inquiry on your credit report.
• Credit utilization: Your utilization represents how much revolving credit you’re using compared with your available credit.
• Payment history: Paying your credit card bills on time is one of the most important things you can do to maintain healthy credit.
• Overall debt management: A balance transfer works best when you use the opportunity to actually reduce your debt rather than create room for additional spending.

How applying for a balance transfer card can temporarily lower your credit score

If you’re opening a new credit card specifically for a balance transfer, you could notice a change in your credit score before you’ve even transferred the balance.

Here’s why.

Hard credit inquiry

When you apply for a credit card, the issuer generally reviews your credit report to determine whether you qualify. This results in what’s known as a hard inquiry.

A hard inquiry may cause your credit score to drop by a few points, although the effect is generally temporary. If you otherwise have a strong credit profile, one application may not have a significant impact.

Opening a new credit account

Getting approved also means you’ll have a brand-new account on your credit report. The age of your credit accounts can factor into your credit score, so opening a new card could reduce the average age of your accounts. Credit scoring models may also consider how recently you’ve opened accounts.

Neither of these factors means you shouldn’t open a balance transfer card. They are simply potential short-term trade-offs to consider against the money you could save on interest.

Before applying, compare the best balance transfer credit cards and review details such as the promotional APR period, balance transfer fee and ongoing APR.

It’s also smart to familiarize yourself with balance transfer rules, since issuers may have restrictions on when transfers must be completed, how much you can transfer and which balances are eligible.

Applying for multiple cards

Applying for several credit cards within a short period could result in multiple hard inquiries and several new accounts appearing on your credit report.

Instead of submitting applications to several issuers and hoping one works out, research your options carefully first. Look at eligibility requirements and card terms to narrow down your choices before applying.

How a balance transfer can improve your credit score

A balance transfer isn’t a quick fix for your credit score, but it can give you a structured opportunity to reduce debt. The credit benefits can come from what you do afterward.

Lowering your credit utilization

Credit utilization compares your revolving credit balances with your available credit limits. For example, if you have $10,000 in available revolving credit and owe $5,000, your overall utilization would be 50%.

Opening another credit card increases your total available credit, assuming you don’t close another account. As you pay down your transferred debt, your overall utilization could fall further. Lower utilization can generally be better for your credit score, although there isn’t one utilization percentage that guarantees a particular score.

 ➤  FREE TOOL:Credit Utilization Calculator

Building a positive payment history

Consistently paying your bill on time can help you maintain a positive payment history. Since payment history is a major component of commonly used credit scoring models, staying current should be a priority throughout your balance transfer period.

Reducing outstanding revolving debt

Paying off debt faster with a credit card balance transfer can lower your debt-to-income ratio. Let’s say you transfer $8,000 in high-interest credit card debt to a card offering an introductory 0% APR and then consistently pay down the balance during the promotional period.

Over time, you might owe $6,000, then $4,000 and eventually $2,000. Assuming you aren’t accumulating significant new balances elsewhere, your overall revolving debt and credit utilization would be falling while you’re also building a history of on-time payments.

There’s no guarantee your credit score will increase by a certain number of points, but those behaviors can contribute to a healthier credit profile.

You can use a balance transfer calculator to estimate how much you could save and help determine the monthly payment needed to tackle your debt during the promotional period.

Common balance transfer mistakes that can hurt your credit score

A balance transfer can provide some much-needed breathing room from high interest rates, but it only works if you use that breathing room wisely.

These mistakes can undermine your progress.

Missing payments

Don’t mistake a 0% introductory APR for not having to make payments. You’ll still receive a monthly statement and need to make at least the minimum payment by the due date. Late or missed payments can damage your credit if reported to the credit bureaus.

Depending on your card’s terms, missing a payment could also affect your promotional offer or result in other consequences, so review your cardholder agreement carefully.

Maxing out the new card

Suppose you’re approved for a balance transfer card with a $10,000 limit and transfer $9,000 to it. Even though your total debt hasn’t increased, that individual card now has very high utilization. Adding new purchases could push the account even closer to its limit.

This is one reason it’s important to know your approved credit limit and how much of your balance you’re actually able to transfer.

Closing your old credit card too soon

Once your old card has a $0 balance, you might be tempted to immediately close the account. However, consider the potential credit implications first.

Closing a credit card reduces your available revolving credit, which could cause your overall utilization ratio to rise. Closing an older card can also eventually affect the age of the accounts appearing on your credit report.

Keeping the account open doesn’t mean you have to keep spending on it. You could put the card somewhere safe and leave the balance at $0. However, you’ll also want to monitor it for unauthorized transactions and determine whether paying an annual fee makes sense.

Continuing to accumulate debt

One of the biggest risks of a balance transfer is viewing the newly available credit on your old card as permission to spend again.

If you transfer $8,000 off an old card and then charge another $5,000 to that account, you haven’t solved your debt problem. Try to avoid adding new balances while you’re paying off the transfer. Otherwise, you could end up juggling multiple balances again, potentially at high interest rates.

How long does a balance transfer affect your credit score?

There’s no universal timeline for how long a balance transfer will affect your credit score. The impact depends on your individual credit history and what you do with your accounts afterward.

Immediate impact

The most noticeable short-term changes could come from applying for and opening a new credit card. The hard inquiry from the application could temporarily lower your score, while the new account could affect factors such as the average age of your accounts.

Medium-term impact

As you begin paying down your transferred balance, your credit profile can change.

You may have lower revolving debt, a lower overall utilization ratio and additional on-time payments added to your credit history. These factors could help offset the initial impact of applying for a new account.

Long-term impact

The long-term effect has less to do with the balance transfer itself and more to do with whether you successfully use it to improve your finances.

If a balance transfer helps you eliminate thousands of dollars of revolving debt while maintaining on-time payments, you may end up in a stronger financial and credit position.

If you transfer debt only to accumulate new balances elsewhere, however, you could end up worse off.

Before making a move, try a balance transfer calculator to determine whether the transfer makes financial sense and how quickly you may be able to repay your balance.

 ➤  FREE TOOL:Balance Transfer Calculator

Tips to protect your credit score when using a balance transfer

A balance transfer works best when you have a plan before you apply. Here are a few ways to protect your credit and get more value from the introductory offer.

Make every payment on time

Consider setting up AutoPay for at least the minimum amount due so you don’t accidentally miss a payment.

Then, whenever your budget allows, make additional payments toward the balance. Paying only the minimum could make it difficult to eliminate a large balance before the promotional period expires.

Keep your credit utilization low

Try not to treat your new credit limit as additional spending money. Ideally, your balance should trend downward throughout the promotional period. Avoiding unnecessary purchases on both the new card and your old card can help prevent your utilization and overall debt from creeping back up.

Pay off the balance before the introductory APR ends

Your introductory APR won’t last forever.

Once the promotional period ends, any remaining balance will generally be subject to the card’s standard APR. Depending on the card and your balance, that could mean paying significant interest again.

Create a repayment plan based on the length of your promotional period. For example, if you need to eliminate $8,000 within 18 months, divide your balance, including any balance transfer fee, by the number of months available to get a starting point for your monthly payment goal.

Ultimately, the best balance transfer strategy depends on your personal situation and goals, but you should aim to utilize the temporary break from interest as an opportunity to make meaningful progress toward paying the debt off for good.

Frequently asked questions about balance transfers and credit scores

Can you transfer a balance without affecting your credit score?

Possibly. If you’re transferring a balance to an existing credit card, you may not need to submit a new credit application, meaning there wouldn’t necessarily be a new hard inquiry or account.

However, moving a large balance onto an existing card could change the utilization on that account. Your overall credit profile can also change as balances are reported, so there’s no guarantee that a balance transfer will have zero impact on your score.

Does transferring a balance between cards from the same issuer affect your credit score?

Credit card issuers generally don’t allow you to transfer balances between two cards issued by the same bank, though policies vary by issuer.

If a transfer is permitted without opening a new account, you may avoid the hard inquiry associated with applying for a new card. However, changes to your balances and utilization could still influence your credit.

Can carrying a balance after the introductory APR ends affect my credit score?

Simply carrying a balance doesn’t automatically hurt your credit score, but a large balance can contribute to higher credit utilization.

There’s also a financial cost to consider. Once your introductory APR expires, the card’s standard APR generally applies to the remaining balance. Paying off as much as possible before that date can help reduce both your debt and interest costs.

Does a balance transfer affect all credit scoring models the same way?

No. There are multiple credit scoring models, including different versions of FICO and VantageScore models, and lenders don’t necessarily use the same one.

The exact impact of a hard inquiry, new account or changing utilization can therefore vary depending on the scoring model and the rest of your credit profile.