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Do balance transfers affect your credit score?
Short answer: Yes, they can, but mostly in indirect ways.
The truth is, your credit score can be affected any time your credit use changes — and that includes balance transfers.
However, a dip or increase in your credit score usually isn’t from the balance transfer itself, but because it indirectly affects factors that determine your FICO score.
What's in this guide?
Do balance transfers hurt your credit score?
Yes, balance transfers can affect your credit score in four main ways:
- Hard pull after card application.
After you send an application, your provider will initiate a hard pull, which means it accesses your credit report to decide whether to lend to you. This can lower your score by five to 10 points, and potentially more. Many hard pulls within a short period of time can impact your score more severely.
- Average account age.
When you open a new account, the average age of all your credit accounts goes down. In turn, this lowers your credit score slightly, often between five to 20 points. Lenders look at average account age because they want to see you’ve been working with credit for a long time.
- Credit utilization.
Your credit utilization matters not only across all of your cards, but also on individual cards. For example, you might have $20,000 in total credit. But if one card with a $2,000 limit is maxed out, lenders may still see that as a red flag. Transferring a balance can affect your credit utilization in a similar way. If your transfer takes up the vast majority of your new card’s credit limit, for instance, your credit score could decrease.
- Payments. After you complete your transfers, you have to make on-time payments. This will directly affect your credit score. If you fail to make your payments, you will see a negative impact on your credit score. But if you manage to pay off your debt, you will be rewarded with a credit score increase.
Could a balance transfer credit card help my score?
Yes. Getting a balance transfer credit card can help your credit score because of two factors:
- Utilization rate. Adding another card to your wallet comes with an additional line of credit. If your debt levels stay the same, adding another line of credit will lower your utilization rate, which positively affects your credit score.
- Paying off your balance. It’s best to use an interest-free period to pay off your debt. Once you pay off your balance, the lower debt levels will positively affect your credit score.
Keep in mind, moving your balance won’t erase your debt or your bad habits. Even if you close your account, anything that happened with the old account will remain on your credit report.
Your credit score may also move in a positive direction, albeit a small one. When you open a card, your total credit increases. Meanwhile, you haven’t taken on more debt. This lowers your credit utilization rate, which may increase your credit score.
Here’s an example
Let’s say you have a balance of $500 and a credit limit of $1,000. Your credit utilization rate is 50% — $500 divided by $1,000.
Now, you open a credit card with a $2,000 credit limit, transferring your balance at the same time. Across your two cards, you have $3,000 in total credit. You’re still using just $500 of it, so now your credit utilization rate is around 17% — $500 divided by $3,000.
Lenders like to see a low credit utilization rate; they want to see that you’re not anywhere close to maxing out your credit. The lower your utilization rate is, the better it is for your credit score.
Prevent a balance transfer from negatively impacting your credit score
There are a few easy steps you can follow to protect your credit during a balance transfer:
- Don’t apply for cards too often.
Try to spread your applications over periods of six months or a year. Applying for new cards over a longer period of time will have less of an impact on your credit file.
- Leave old credit cards open.
After your balance transfer, consider keeping your old card open. If you close it, you’ll lower your average age of credit accounts. Plus, you’ll decrease your total credit. Both can lower your credit score.
- Review terms and conditions.
Go through the balance transfer offer terms and conditions at the very onset. Account for all applicable fees — including annual and balance transfer fees — and calculate whether you can afford the card. Also, do your research to check whether you meet general eligibility requirements such as credit score, residency and minimum income. By applying only for cards you have a good chance of getting approved for, you can avoid unnecessarily losing points from your credit score.
- Pay on time.
Making a late payment can result in the termination of the promotional balance transfer offer, so try to stay on top of your bill due dates. Also, consider setting up autopay. As you consistently make on-time payments, you’ll slowly see an improvement in your credit score.
- Keep your credit utilization low.
Ideally, keep your balance on all of your credit cards below 30% of your credit limit. If a balance transfer puts your credit utilization over this amount, consider paying down the balance.
Maximum balance transfer rule
The most you can transfer depends on the credit limit of the credit card you’re transferring to. That maximum credit limit will depend heavily on your creditworthiness. Because of how these interact, your credit score will likely directly affect how much of your debt you can transfer.
Sometimes, the maximum you can transfer will be lower than your card’s credit limit. This is to account for the balance transfer fee, which normally adds 3% to 5% to the cost of the transfer.
Compare balance transfer credit cards
Consider avoiding a balance transfer if…
Balance transfers are an excellent financial tool that can help you pay off your debt and improve your credit score. However, it could be better avoiding balance transfers if:
- You’ll be submitting a credit application soon.
You may, for example, be applying for a mortgage or something similar. In this case, you want your credit score to be as high as possible, as it could get you a lower interest rate and keep dollars in your pocket.
- Your card doesn’t have an intro APR.
Outside of intro-APR periods, balance transfers don’t have grace periods on interest. This means each transfer will start accruing interest immediately.
- You have a low chance of approval for a new card.
If you have a low credit score or annual income, or if you’re overwhelmed by debt, chances are high you’ll be denied for a balance transfer card. Consider other credit products, such as secured cards, or opportunities for debt reduction such as nonprofit credit counseling.
Similar to any type of credit card, a balance transfer credit card can hurt your credit score. Researching and comparing your balance transfer credit card options beforehand will ensure you’re applying for a card you’re both eligible for and can afford, increasing your likelihood of approval.
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