Do Balance Transfers Hurt Your Credit Score?

A balance transfer can initially hurt your credit score in two ways. First, applying for a new credit card to facilitate the balance transfer can result in a hard inquiry. According to FICO, a single hard inquiry takes less than five points off the credit scores of most individuals and will stay on your credit report for two years. Inquiries account for 10% of your FICO score. These hard pulls are noted on your credit report and can lead to a small, temporary drop in your credit score.

Second, getting a new balance transfer card lowers the average age of your credit accounts. Credit age, or the length of your credit history, is a factor in calculating your credit score. This accounts for 15% of your FICO credit score. A shorter credit history might be seen as less stable, potentially resulting in a lower credit score.

If you’re transferring to a card you already have, the balance transfer won’t hurt your credit. Just be on the lookout for your credit card’s balance transfer fees. Some cards (such as the Citi Double Cash and Chase Slate Edge cards) charge higher fees if you transfer a balance after their promotional period.

Despite this, balance transfers aren't necessarily bad for your credit in the long run. They can improve your credit if you make the most out of them.

When done right, a balance transfer can help improve your credit. You’ll be on top of your payments and save on interest, enabling you to pay off your debt faster. As your debt decreases, you could see your credit score rise.

Getting a balance transfer card increases the amount of available credit you have, which helps lower your credit utilization ratio — the amount of available credit that you’re currently using.

Credit utilization ratio is one of the factors credit bureaus consider when calculating your credit score. A low credit utilization ratio is good, as it accounts for 30% of your FICO Score.

For instance, if you owe $2,000 on a card with a $5,000 limit, you're using 40% of your available credit. If you transfer that $2,000 to a new credit card with the same limit and keep your old card open without adding any new charges, you now have a total credit limit of $10,000 with the same $2,000 debt (plus the balance transfer fee). This means you're using just 20% of your available credit, which can potentially help your credit score as it’s below the 30% benchmark.

A balance transfer, with a sound debt repayment strategy, can speed up your debt reduction. Instead of paying more on interest, more of those payments go toward your principal balance, which makes it possible to pay off your balance faster.

Missed payments stay on your credit report for seven years. With a balance transfer, you can avoid missed payments by consolidating multiple debts into a single manageable payment schedule. It can also help you avoid late fees should you occasionally miss payments on your old balances.

There are pros and cons to applying for a balance transfer card and initiating the transfer, such as a temporary dip in your credit score.

A key advantage is the introductory 0% APR period, usually six to 21 months, allowing for interest-free debt repayment. This could help you pay off your debt quicker and reduce your overall payments. To make this work, you need a solid plan to clear the debt before this period ends to avoid the high variable APR.

However, if the new card's annual fees outweigh the interest savings, especially without a 0% intro APR, the transfer might not be worth it. Additionally, while consolidating multiple debts into one card simplifies payments, be mindful of potential fees and higher interest rates after the introductory period.

Finding the right credit card that can help you maximize the benefits of a balance transfer can make all the difference. Here are a few tips to guide you in making the best choice: