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How does a balance transfer affect my credit score?

Learn how a balance transfer can affect your credit score and what you can do to ensure it has a positive impact on your credit rating.

Opening a balance transfer card may affect your credit rating in both positive and negative ways. Your credit score changes based on a variety of factors, and getting a new balance transfer card will change your score slightly.

In this guide, we consider how a balance transfer credit card can affect your credit history, and the easy steps you can follow to ensure it has a positive impact on your credit score, and not a negative one.

How can a balance transfer affect my credit rating?

Your credit file contains details of your entire credit history. It contains records of the type of credit you’ve been approved or rejected for, your payment history, enquiries about your credit score, the age of your accounts and credit usage. Each of these factors has an impact on your overall credit score. You can expect lenders to go through your credit file each time you apply for a new credit card.

Here are some of the ways a balance transfer credit card could affect your credit score:

  • Average account age. You might see a slight drop in your credit score when you apply for the card. This is because opening a new account lowers what is known as your average account age. Lenders look at this metric because they want to see you’ve had a relationship with your credit card for a long time. This drop is usually quite small and amounts to a decrease of 5 to 20 points, however, you’ll recover from it quickly if you make your credit card payments on time.
  • Credit utilization rate. Initiating a balance transfer can increase your credit score by increasing your credit utilization rate. As the term implies, this means how much of your available credit you’re using. For example, if you have a balance of $500 and a credit limit of $1,000, your credit utilization rate is 50% ($500 divided by $1,000). Lenders like to see a low credit utilization rate; they want to see that you’re not anywhere close to maxing out your credit. So the lower your utilization rate is, the better it is for your credit score.
  • Status and number of applications. If your application for a balance transfer credit card is rejected, this will have a negative impact on your credit score. Applying for several credit cards at the same time or within a short period of time will also have a similar outcome on your score. New credit accounts constitute 10% of your credit history, so it’s important to consider this when applying for a new card.
  • Repayment history. When you’re approved for a balance transfer credit card make sure you meet the regular minimum repayments. If you don’t make the payments and ultimately can’t repay your balance by the end of the promotional period, thereby increasing your level of debt, this could have a negative impact on your credit score.
  • Remaining accounts. If you fail to close your old account after you’ve transferred your balance to a new card, this can have a negative impact on your credit score unless you’re making regular repayments on both accounts.
  • Multiple transfers. If you’re unable to repay your debt by the end of the promotional period and have to move the remaining amount to another balance transfer credit card, this can also negatively impact your credit score.Back to top

How can I prevent my balance transfer from having a negative impact on my credit score?

There are a few easy steps you can follow to keep your credit score in good standing when conducting a balance transfer:

  • Don’t apply too often. When applying for credit cards, try to spread your applications over six months or one year periods. Applying for new cards over a longer period of time will have less of an impact on your credit score.
  • Review the terms and conditions. Go through the balance transfer offer terms and conditions at the very start. Account for all applicable fees, including any hidden charges and ongoing annual fees, and calculate whether you can afford the card before you even apply for it. You’ll also need to confirm whether you meet all of the eligibility requirements, such as minimum income, credit score and residency, and that you have all of the required documents to ensure your application isn’t rejected.
  • Pay on time. Making a late payment can result in the termination of the promotional balance transfer offer, so do your best to repay your balance on time. By repaying the entire balance before the promotional period ends, you demonstrate your willingness and ability to repay outstanding debts, and you can expect lenders to view this positively. Not repaying the entire balance before the promotional period ends would have you paying higher interest on any outstanding balance, and can also impact your ability to get a new card, thus resulting in a credit score drop.
  • Avoid new purchases. Avoid making purchases during the balance transfer period, as this could increase your debt. Your repayments will automatically go towards whichever debt accrues a higher interest, which is more than likely going to be the purchase, if a low or 0% balance transfer rate is in place. This means that you’ll be wasting funds you could be using to consolidate your debts to repay purchases. Again, your inability to repay your balance can have a negative impact on your credit score.
  • Don’t cancel your old cards if you don’t have to. If your old cards have an annual fee, you may want to cancel them so that you are not paying an unnecessary fee. However, if your old cards have no annual fee, you may want to consider keeping them open so you can raise your credit utilization rate and decrease your debt-to-limit ratio. Read on to understand what this means.Back to top

Taking a closer look at credit utilization rate

If you open another balance transfer credit card, you’ll need to be careful about what transferring your debts to another card might do to your credit utilization rate, also known as your debt-to-limit ratio. Your credit utilization rate is how much credit you have versus how much you’re using. Or, more technically, the amount of outstanding balances on your cards divided by the sum of each card’s limit.

Understanding your debt to limit ratio

Let’s say you have a total credit limit of $1,000 and a total balance of $500. To determine your credit utilization rate, you’d divide your total balance –or $500 – by your total credit limit of $1,000. Doing so results in a credit utilization rate of 50%. When you open up a balance transfer card, your credit utilization rate goes down on that card. Here’s how:
  • You have a $500 balance on your current card. This card has a $1,000 credit limit. Right now, your credit utilization rate is 50%.
  • Now you transfer that $500 balance to another card with a $2,000 credit limit, which brings your credit utilization rate down to 25% (500 divided by 2,000).

However, if your new balance transfer credit card has a maximum limit of $2,000 and you transfer $2,000 worth of debt onto it, your credit utilization rate on your new card is now 100%.

As a rule of thumb, creditors like to see a credit utilization rate of 30% or less. You can see how you’ll need to consider both of your credit utilization situations on your old card and your new card to understand how it affects your score.

What’s more, a new credit card will reduce the average age of your credit accounts, and around 15% of your credit score depends on credit age.

If you do your research, compare your options, make a repayment plan and use your best judgment on future choices, a balance transfer card could be the first step toward financial freedom.

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What goes into my credit history?

Credit card details

Percentage of credit file

Payment history

35%

Outstanding debt

30%

Established credit

15%

Credit limit

10%

Type of credit

10%

Compare balance transfer credit cards

Name Product Balance Transfer Rate Balance Transfer Fee Purchase Interest Rate Annual Fee Min. Credit Score Description
Scotiabank Value Visa Card
0.99% for the first 6 months (then 12.99%)
N/A
12.99%
$29
Min. recommended credit score: 660
Get a 0.99% introductory interest rate on balance transfers with a 0% transfer fee for the first 6 months. Apply by February 28, 2022.
BMO CashBack Mastercard
1.99% for the first 9 months (then 22.99%)
1%
19.99%
$0
Min. recommended credit score: 660
Get 5% cash back on all eligible purchases in the first three months of card membership (up to max. spend of $2,000). Plus, get a rate of 1.99% on balance transfers with a 1% balance transfer fee for nine months.
Tangerine World Mastercard
1.95% for the first 6 months (then 19.95%)
3%
19.95%
$0
Min. recommended credit score: 600
Earn an extra 15% cash back (up to $150) on up to $1,000 of everyday purchases in the first 2 months Until January 31, 2022. Plus, get a 1.95% interest rate on balance transfers for the first 6 months (valid within the first 30 days of account opening, 1% transfer fee applies).
BMO Preferred Rate Mastercard
3.99% for the first 9 months (then 12.99%)
1%
12.99%
$20
Min. recommended credit score: 660
Get a rate of 3.99% on balance transfers for 9 months with a 1% transfer fee. Plus, get the $20 annual fee waived in the first year.
Tangerine Money-Back Credit Card
1.95% for the first 6 months (then 19.95%)
3%
19.95%
$0
Min. recommended credit score: 600
Earn an extra 15% cash back (up to $150) on up to $1,000 of everyday purchases in the first 2 months Until January 31, 2022. Plus, get a 1.95% interest rate on balance transfers for the first 6 months (valid within the first 30 days of account opening, 1% transfer fee applies).
BMO Rewards Mastercard
1.99% for the first 9 months (then 22.99%)
1%
19.99%
$0
Min. recommended credit score: 725
Get a bonus of 10,000 BMO Rewards points when you spend $1,000 in the first 3 months. Plus, get a rate of 1.99% on balance transfers for 9 months. A 1% fee applies to transferred balances.
BMO AIR MILES Mastercard
1.99% for the first 9 months (then 22.99%)
1%
19.99%
$0
Min. recommended credit score: 660
Get 800 AIR MILES Bonus Miles (enough for $80 towards purchases with AIR MILES Cash). Get a rate of 1.99% on balance transfers for 9 months. A 1% fee applies to transferred balances.
Scotia Momentum No-Fee Visa Card
1.99% for the first 6 months (then 22.99%)
N/A
19.99%
$0
Min. recommended credit score: 660
Earn 5% cash back on all purchases for the first 3 months (up to $2,000 in total purchases). Plus, get a 1.99% introductory interest rate on balance transfers for the first 6 months with no balance transfer fee. Apply by January 1, 2022.
Scotiabank Gold American Express Card
0% for the first 6 months (then 22.99%)
1%
19.99%
$0 annual fee for the first year ($120 thereafter)
Min. recommended credit score: 700
Earn up to 40,000 bonus Scene+ points in your first year (that's up to $400 towards travel) and no annual fee in the first year, including supplementary cards. Plus, get a 0.00% introductory interest rate on balance transfers for the first 6 months (A 1% balance transfer fee applies). Apply by January 1, 2022.
Scotia Momentum Visa Card
2.99% for the first 6 months (then 22.99%)
N/A
19.99%
$39
Min. recommended credit score: 660
Get a 2.99% introductory rate on balance transfers and a 0% balance transfer fee for the first 6 months. Apply by February 28, 2022.
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Bottom line

Similar to any type of credit card, a balance transfer credit card can have a negative impact on your credit score. Researching and comparing your balance transfer credit card options beforehand will ensure that you’re applying for a card that you’re eligible for, can afford and that meets your needs, increasing your likelihood of approval.

Keeping a budget in mind, and doing your best to repay your debt before the promotional period ends on your balance transfer card, are other ways you can reduce the impact a balance transfer has on your credit rating. Balance transfers can be a great way to consolidate your debt without the cost of interest, but conducting research and managing your finances is crucial if you want to reduce the impact it could have on your credit score.

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