How a Balance Transfer Can Affect Your Credit Score

A balance transfer can be a savvy financial move, but it's not without consequences for your credit score. Understanding the short-term dips and long-term benefits is key to making it work for you.

1. The Hard Inquiry: When you apply for a new balance transfer card, the lender performs a hard inquiry on your credit report. This can cause a small, temporary dip in your score.
2. New Account Impact: Opening a new line of credit lowers the average age of your accounts. Since credit history length is a scoring factor, this can have a minor negative effect.
3. Credit Utilization Shift: The most significant change comes from your credit utilization ratio. By moving a large balance to a new card with a high limit, you can drastically lower your utilization, which may significantly boost your score.
4. Managing the Old Account: What you do with the original card matters. Closing it reduces your total available credit and shortens your credit history, potentially harming your score. Keeping it open with a zero balance is often the better strategy.

How Much Will a Balance Transfer Affect Your Credit Score?

A balance transfer can impact your credit score in several ways, both positively and negatively. Here are the key factors to consider before you make a move.

• Credit utilization ratio. A balance transfer can lower your credit utilization by moving debt to a new card with a higher limit. This often has a positive impact on your score.
• New credit inquiry. Applying for a new balance transfer card results in a hard inquiry on your credit report. This can cause a small, temporary dip in your credit score.
• Average age of accounts. Opening a new credit card will lower the average age of your credit accounts. A shorter credit history can negatively affect your score over time.

How You Can Avoid a Balance Transfer Affecting Your Credit Score

Check Your Score Before Applying

Knowing your credit score helps you target cards you are likely to be approved for. This avoids accumulating multiple hard inquiries from denied applications, which can negatively impact your score. Applying strategically is key to protecting your credit while seeking a new card.

Keep the Old Account Open

Avoid closing your old credit card after the transfer. Keeping the account open, ideally with a zero balance, preserves your total available credit. This helps maintain a healthy credit utilization ratio and protects the average age of your credit history, both important scoring factors.

Make Timely Payments

Consistently making on-time payments on the new card is critical. Your payment history is the most influential factor in your credit score. Any late payments will be reported to credit bureaus, quickly damaging your score and negating the benefits of the transfer.

Choose the Right Card to A Balance Transfer

Improving your credit score is not only possible but is a crucial step toward a healthier financial life, impacting everything from loan terms to credit card approvals. With the right strategies and consistent effort, you can work toward a better score, with most people seeing meaningful changes within three to six months.

• Monitor your credit reports regularly. Obtain free reports from the three major bureaus to identify and dispute inaccuracies, detect potential identity theft, and track your progress.
• Establish automatic bill payments. Setting up automatic payments or reminders helps ensure you pay on time, which is the most significant factor influencing your FICO® score.
• Reduce your credit utilization ratio. Keep your credit usage below 30% by paying down balances, requesting credit limit increases, or keeping old accounts open.
• Become an authorized user. Being added to a credit card account with a strong payment history and low utilization can help build your own credit profile, provided the account reports to all major bureaus.
• Diversify your credit mix. Lenders like to see that you can responsibly manage different types of credit, such as installment loans and revolving credit cards.
• Limit hard inquiries. Space out your credit applications and use prequalification tools whenever possible to avoid having too many hard pulls on your report in a short time.

The Bottom Line

A balance transfer can cause a temporary dip in your credit score from a hard inquiry, but it can ultimately help improve it by lowering your credit utilization and simplifying debt payments.

Frequently Asked Questions

Will a balance transfer hurt my credit score?

Initially, the hard inquiry for the new card can cause a small, temporary dip. However, lowering your overall credit utilization can improve your score long-term.

How quickly will a balance transfer affect my credit score?

The hard inquiry's impact is almost immediate. Positive effects from lower credit utilization may take one to two billing cycles to reflect on your credit reports.

Should I close my old credit card after a balance transfer?

Closing an old card can lower your score by reducing your available credit and shortening your credit history. It's often better to keep the account open.