Balance transfers are likely to affect your credit score, though not directly. While balance transfers themselves aren’t reflected on credit reports, and thus aren’t directly used to calculate credit scores, balance transfers can change your financial picture in ways that could alter your credit score temporarily.
You can use WalletHub’s free credit score simulator to forecast how a balance transfer might affect your credit score in particular. You can also learn more about how balance transfers affect credit scores in general below.
Here’s how balance transfers affect your credit score:
High credit utilization rate:
It’s best to use less than 30% of a credit card’s credit limit. However, a balance transfer can wind up consuming much more than that, which isn’t great for your credit score.
When you apply for a balance transfer card, the issuer will pull a copy of your credit report. Known as a hard inquiry, this will lower your credit score slightly, but only temporarily.
Average age of accounts:
A new balance transfer card will reduce the average age of your credit card accounts, which could knock a few points off your credit score.
Future credit score increase:
Your credit score should recover with time. Making payments on time is crucial to maximizing your credit score after a balance transfer, however, as is avoiding serious debt in the future.
To stay on top of your credit throughout every stage of a balance transfer, sign up for a free WalletHub account. You’ll get daily credit score updates, 24/7 credit monitoring, and personalized credit improvement advice.
No, balance transfers are not inherently bad, but they can be bad for your finances if used recklessly. When you transfer a balance, you're ideally shifting high-interest debt to a credit card with a lower interest rate. The best balance transfer credit cards feature 0% APR offers for a specific number of months, but these introductory APRs eventually expire. If there's a balance remaining at the end of the introductory period, it will accrue interest daily at the card's regular APR. And if you're late in paying, the issuer could revoke the introductory APR. Your remaining balance would then be subject to the regular APR or even a higher … read full answerpenalty APR in some cases.
Opening a balance transfer credit card account may affect your credit score because it can trigger a hard inquiry on your credit report. But that's the case with most credit cards. The most important thing is to use a balance transfer to reduce the cost of your debt, not just prolong spending habits that really can't last in the long run. So avoid repeated balance transfers. While you may get a break on interest for a while, this practice may limit your chances of getting approved for another balance transfer card in the future.
You also need to consider balance transfer fees. The average balance transfer fee is about 3% of every balance you transfer. That could end up being very costly. While there are cards that have no balance transfer fees, you often get a longer 0% introductory term in exchange for a fee, and that may save you money in the long run. Also, you can only transfer balances up to your card's credit limit (or sometimes a lower balance transfer limit), and that includes fees.
When used responsibly, balance transfers are a useful tool that help you reduce the cost of your debt. Just make sure their cost, including APRs and fees, is lower than your existing debt. It's a good idea to use a balance transfer calculator to figure out which card will save you the most money at the end of the day.
A balance transfer is a good idea if it will save you money, and that is most likely if you have good or excellent credit and you make an affordable payment plan prior to applying. You generally need good credit or better to get a 0% balance transfer credit card. Most balance transfer cards have very high regular APRs, making it important to repay what you owe before the 0% period ends.… read full answer
You’ll also want to make sure the new card’s balance transfer fee is as low as possible. The average fee is just under 3%. But, from time to time, there are credit cards that have both 0% APR on balance transfers and no balance transfer fee.
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