Do balance transfers hurt your credit score?

Written by
Choncé Maddox
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A credit card balance transfer can be extremely helpful when you’re juggling multiple credit card balances and trying to keep up with various interest rates. Since getting a balance transfer does often involve applying for and opening a new credit card account, you may be wondering how balance transfers affect your credit score.

When it comes to determining if balance transfers hurt your credit, the answer is yes and no. Getting a balance transfer can negatively impact your credit, but it can also have a very limited effect on your credit or even help you improve your credit score depending on certain factors.

Let’s take a closer look at how balance transfers work and their potential impact on your credit score.

How balance transfers work

balance transfer involves moving the balances from one or more credit cards to another card with a lower interest rate. Usually, the best balance transfer credit cards offer 0% APR anywhere from nine to 18 months on average. This can help to make debt more manageable since you can focus solely on paying the credit card balance off and not any accumulating interest.

The new card issuer pays off the old debts, and you make payments to the new issuer. A balance transfer also helps consolidate your credit card debt payments – ideally to just one card. If you get approved for a higher credit limit with a balance transfer card, you may notice that your monthly payment is slightly lower than the total amount you were paying across multiple cards.

Balance transfers typically require a fee which is either a flat rate or a percentage of the card balance (whichever is greater). After the introductory period, interest rates may increase significantly, so it’s important to pay off the transferred balance as soon as possible.

How do balance transfers affect your credit score?

Balance transfers may impact your credit score in a few ways:

  • Hard credit check. When you apply for a new credit card, the issuer may perform a hard credit check. This can temporarily lower your credit score. However, if you make payments on the new card consistently and on time, your credit score should gradually recover.
  • Credit utilization. This is the amount of credit you’re using compared to your total available credit. Transferring multiple balances onto one card may result in a high credit utilization rate, which can negatively impact your credit score. According to FICO, credit utilization makes up 30% of your credit score. It’s best to keep your credit utilization rate below 30%, so consider this when deciding which balances to transfer.
  • Loss of credit history with the old card(s) if you close them. If you close the credit card you transfer your balance from, this could reduce your credit history length which can decrease your credit score. As a general rule of thumb, it’s best not to close credit cards open unless there’s a high annual fee you can’t waive or you simply plan to never use the card again. The longer you keep your credit card open, the longer your credit history length will be which helps your credit score. If the card has an annual fee, you might consider a product change instead of closing the account.
  • Fees. While a balance transfer can help you save on interest, be sure to factor in the fee amount and how much it will add to your total balance since this can increase your credit utilization.
  • Interest on new purchases. Keep in mind that some balance transfer cards charge the standard interest rate on new purchases while offering 0% APR temporarily on the initial balance that you transfer. It’s best to avoid additional purchases on your balance transfer card if you can’t afford to pay the balance off in full each month. Otherwise, those new purchases will just increase your credit utilization rate (negatively impacting your score) and cost you more money in interest payments.

When should you consider a balance transfer?

Balance transfers can be a great option if you’re struggling to keep up with high interest rates and multiple debts. However, it’s important to evaluate whether a balance transfer is right for you. Consider the following:

  • Are you disciplined enough to make payments on the new card consistently and on time?
  • Can you pay off the transferred balance within the promotional period to avoid paying high interest rates?
  • Is the new card offer better for you in terms of interest rates and fees?

If you’re confident that you can manage your debt and payments effectively, a balance transfer could be a good option.

Tips for using a balance transfer card and maintaining a good credit score

Are balance transfers bad for your credit? They don’t have to be. If you feel a balance transfer could help you pay down credit card debt, you can utilize this option while still maintaining a good credit score by following these best practices:

  • Determine what credit limit you need first. If you’re considering a balance transfer, calculate your ideal credit limit that will allow you to transfer your credit card balance(s) and still maintain a reasonable credit utilization rate. For example, if you are thinking about transferring a $3,000 balance, you may want to consider a $10,000 limit or higher for your new balance transfer credit card.
  • Compare card options. There are several balance transfer card offers so be sure to compare the fees, 0% promotional APR length, and any other perks or drawbacks before narrowing down your choice. Choosing a quality balance transfer card that you can keep open and use long-term can help you pay down your debt faster and maintain a good credit score.
  • Consider keeping your old credit card(s) open. You don’t have to use them often but if possible, try to keep your old credit card open so you don’t lose the history of the account. If your old card has an annual fee, you might consider a product change.
  • Make payments on-time. Making timely payments on your balance transfer card is crucial for maintaining a good credit score. Missing payments or carrying a balance can hurt your credit and potentially negate any positive effects of the balance transfer.

Are balance transfers worth it?

Balance transfers can be worth it if you use them responsibly. They can help you save money on interest and make your debt more manageable. However, it’s important to do your research and find a card with favorable terms and conditions.

Also, make sure you can commit to making payments consistently and on time to avoid negatively impacting your credit score. Consider your unique financial situation carefully and have a solid plan in place before transferring your balances to make sure it’s genuinely the right decision for you.

If you’re ready to start exploring your options, check out the best balance transfer credit cards with 0% APR, welcome bonuses, and no annual fee.

Choncé Maddox
Cardratings Contributor

Choncé is a personal finance freelance writer who enjoys writing about credit cards, business loans, debt management, and helping people achieve financial wellness. Having a background in journalism, she decided to enter the world of content writing in 2013 after noticing many publications transitioning to...Read more

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