Will a balance transfer affect my credit score? | finder.com
How does a balance transfer affect my credit rating?

How does a balance transfer affect my credit score?

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

Opening a balance transfer card may affect your credit in some good ways and in some bad ways. Your credit score — also known as your FICO score — changes based on a mix of factors, and getting a new balance transfer card will tweak them a bit.

Here we’ve unpacked how a balance transfer can affect your credit history and the easy steps you can follow to ensure it has a positive impact on your credit score.
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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 for credit, the age of your accounts and credit usage, each of which have 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 could affect your credit rating:

  • Average account age. You might see a slight drop in your credit score when you apply for the card. That’s 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 usually amounts to a small 5 to 20 points, however, and you’ll recover from it quickly with timely payments.
  • Credit utilization rate. Initiating a balance transfer can lift your credit score by increasing your credit utilization rate. As the term implies, that just means how much of your available credit you’re using. So 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 you apply for a balance transfer and are rejected, this will have a negative impact on your account. Applying for several credit cards at the same time or within a short period of time will have a similar outcome on your file. New credit accounts constitute 10% of your credit history, so it’s important to consider this when applying for a new card.
  • Repayment history. If you are approved for a balance transfer but are unable to meet the regular minimum repayments and 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 regularly 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 look bad on your credit file.

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

There are a few easy steps you can follow to keep your credit file 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 a less of an impact on your credit file.
  • Review terms and conditions. Go through the balance transfer offer terms and conditions at the very onset. Account for all applicable fees, including any hidden charges, ongoing annual fees and calculate whether you can afford the card. 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 with favor. 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.
  • 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. But 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 that means.

Taking a closer look at credit utilization rate

If you open another balance transfer credit card, you want to be careful about what transferring your debts might do to your credit utilization rate, also known as 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, for example, $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.

Further, 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, make a plan and use your best judgment on future choices, a balance transfer card could be the first step toward financial freedom.
Learn how to get your credit score

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

Rates last updated April 19th, 2018
Name Product Product Description Intro APR for Balance Transfer APR for Purchases ( Purchase Rate ) Annual fee Minimum Credit Score
Blue Cash Everyday® Card from American Express
Earn $150 back after you spend $1,000 in purchases on your new Card in your first 3 months. You will receive the $150 back in the form of a statement credit.
0% Intro APR for 15 months (with whichever is greater, $5 or 3% balance transfer fee)
14.49% to 25.49% variable
$0
Fair (660-699)
The Chase Freedom® Unlimited™ credit card
Earn unlimited 1.5% cash back on every purchase – it's automatic. No minimum to redeem for cash back.
0% Intro APR for 15 billing cycles (with whichever is greater, $5 or 5% balance transfer fee)
16.24% to 24.99% variable
$0
Fair (660-699)
Chase Slate® credit card
Jumpstart your financial fitness! 60 day introductory balance transfer offer, save on interest, and get your free monthly credit score.
0% Intro APR for 15 billing cycles (with $0 for transfers in first 60 days. Then $5 or 5% balance transfer fee)
16.24% to 24.99% variable
$0
Fair (660-699)
BankAmericard Cash Rewards™ Credit Card
Earn more cash back for the things you buy most.
0% Intro APR for 12 statement closing dates (with whichever is greater, $10 or 3% balance transfer fee)
14.49% to 24.49% variable
$0
Good (700-739)
HSBC Cash Rewards Mastercard®
Earn unlimited 1.5% cash rewards on purchases. See Rates and Fees
0% Intro APR for first 15 months from account opening (with whichever is greater: $10 or 4% balance transfer fee)
14.49%, 18.49% or 24.49% variable
$0
Fair (660-699)
NASA Federal Platinum Advantage Rewards Credit Card
NASA Federal Platinum Advantage Rewards Credit Card
Enjoy perks and save money while gaining points that never expire with every purchase.
9.9% Intro APR for 90-days
11.40% to 17.99% variable
$0
Fair (660-699)
DCU Visa® Platinum Secured Credit Card
A great way to establish or improve your credit history.
13.00% variable
$0
Poor (Below 660)
primor® Secured Visa Gold Card
Fast, easy application process. No processing or application fees!
9.99% variable
$49
Poor (Below 660)
Barclaycard Ring™ Mastercard®
A low, variable APR on purchases, balance transfers and cash advances.
10.49% variable
$0
Good (700-739)
Discover it® Secured Credit Card
2% Cashback at restaurants or gas stations on up to $1,000 in combined purchases each quarter. Plus 1% cash back on all other credit card purchases.
10.99% Intro APR for 6 months (with the amount of each transfer, 3% balance transfer fee)
24.49% variable
$0
Poor (Below 660)
Fifth Third Secured Card
Build, or rebuild, your credit with each purchase.
25.49% variable
$24
Poor (Below 660)

Have we missed anything in the comparison table? Tell us

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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 rating. Researching and comparing your balance transfer credit card options beforehand will ensure you’re applying a card that you’re both eligible for and can afford, increasing your likelihood of approval.

Managing your card with a budget in mind and doing your best to repay your balance before the promotional period ends is another way you can reduce the impact a balance transfer has on your credit card. 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 file.

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