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Do balance transfers hurt your credit in any way?

By , CardRatings Contributor

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Balance transfers offer some of the best opportunities to save money and to pay down your debt, as long as you use them responsibly. However, the temptation to dip back into an extended line of credit can wreck your chances of optimizing your credit score.

First, remember that responding to any instant approval credit card offer will drop your FICO score by at least a few points. Credit scoring algorithms don't know the intention behind your new line of credit, they just see that a lender's extending your overall credit limit.

Next, think about whether your pending balance transfer could throw your overall credit utilization out of alignment. Lenders like to see you use just enough of your credit to prove that you can handle monthly bills. However, they get nervous when they see any one of your open accounts drift too far toward your credit limits. Transferring all of your outstanding debt to a low introductory rate offer may cut down your monthly finance charges, but that move could prevent you from qualifying for the lowest mortgage and insurance rates.

Finally, use your balance transfer as an opportunity to put your old credit cards on ice. Closing an old account can drop your credit score if it shortens the average age of your active lines of credit. Instead, seal that card up and keep in on file in case of only the most dire emergency.

Many consumers make the mistake of dipping back into a line of credit after a balance transfer, leaving them with twice as much debt. Your goal should be to clear as much of your overall balance, as fast as possible. Only then will you have helped restore your credit score to its pre-transfer level.

Pay close attention to balance transfer credit card offers with no balance transfer fee. Many banks now charge as much as 5 percent of your balance transfer upfront, even on zero-percent introductory balance transfer credit cards

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