Do Balance Transfers Hurt Your Credit Score?

Updated: November 8, 2024

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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.

KEY TAKEAWAYS
  • If you make a balance transfer to a new card because of a promotional offer, your credit will be impacted, just like when you open any other credit card. However, transferring a balance in itself doesn’t hurt your credit.
  • Assuming you use the introductory APR to pay your balance within the introductory period, your credit score should improve. Be sure to continue to make payments on new purchases.
  • A balance transfer might not significantly impact your credit score if you have a strong credit history with a diverse mix of credit and older accounts. You're more likely to see the effect if you have a shorter credit history or a low credit score.
  • Don't cancel your old credit card. Unless there are annual fees, keeping the old card decreases your credit utilization ratio, which helps offset the negative aspects of having a new card.

How Balance Transfers Help Your Credit

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.

Balance Transfers Lower Your Credit Utilization Ratio

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.

Balance Transfers Help You Pay Your Debt Faster

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.

Balance Transfers Can Mean Fewer Late Payments

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.

When to Do a Balance Transfer

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.

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MONEYGEEK EXPERT TIP

"It is important that you make all payments on time during your promotional offer. If you miss a payment, the card issuer may prematurely end your 0% APR offer and start charging interest before you are able to pay off the balance." — Lee Huffman, credit card expert at BaldThoughts.com.

Tips on Improving Your Credit Score With a Balance Transfer

You can help reduce the impact of a balance transfer by following these tips:

  1. 1
    Apply for One Card at a Time

    When seeking a balance transfer, apply for just one card at a time. This minimizes hard inquiries on your credit report, which can temporarily lower your credit score.

  2. 2
    Choose the Right Balance Transfer Card

    Look for a balance transfer card with terms that work best for you. These might include a longer introductory period with no interest, lower variable APR or low ongoing rates.

  3. 3
    Keep Old Accounts Open

    Unless an account has an annual fee, keep it open. This helps you maintain a long credit history and a favorable credit utilization ratio.

  4. 4
    Pay Off as Much Debt as Possible

    If possible, pay more than the minimum payment each month. This not only reduces your debt faster but also demonstrates responsible credit management.

  5. 5
    Avoid Multiple Balance Transfers

    Repeated transfers can lead to multiple credit inquiries, which will hurt your credit score in the long run. Also, multiple inquiries can give the impression of credit dependency, which is a red flag for lenders and creditors. If you think you’ll need a longer period to pay your balance, debt consolidation or a personal loan is a better option.

Tips for Finding the Right Balance Transfer Credit Card

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:

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    Look for a 0% Intro APR

    Look for a card with a 0% introductory APR. This period allows you to pay off your balance without accumulating more interest. Ensure that you can pay off your balance within that time frame.

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    Check the Balance Transfer Fee

    Most cards charge a fee for balance transfers, which is usually 3% to 5% of the amount you're transferring (or a set amount, whichever is higher). These fees form part of your new credit card debt, so be sure to account for them when making a balance transfer.

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    Review the Ongoing APR

    After the introductory period, the ongoing APR will apply to any remaining balance on your balance transfer card. Find a card with a competitive ongoing rate, particularly if you anticipate needing more time to pay off your balance.

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    Understand the Credit Requirements

    Many balance transfer cards require at least fair credit. Ensure you meet the credit score requirements of the card you're considering to increase your chances of approval.

FAQ About Balance Transfers and Your Credit Score

What does a balance transfer do to your credit?
Are balance transfers bad?
Is it better to get a loan or a balance transfer?
What is the effect of doing multiple transfers on your credit score?
How long does a balance transfer usually take?

About Doug Milnes, CFA


Doug Milnes, CFA headshot

Doug Milnes is a CFA charter holder with over 10 years of experience in corporate finance and the Head of Credit Cards at MoneyGeek. Formerly, he performed valuations for Duff and Phelps and financial planning and analysis for various companies. His analysis has been cited by U.S. News and World Report, The Hill, the Los Angeles Times, The New York Times and many other outlets.

Milnes holds a master’s degree in data science from Northwestern University. He geeks out on helping people feel on top of their credit card use, from managing debt to optimizing rewards.


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