Do Balance Transfers Hurt Credit?

Learn how a balance transfer could impact your credit

If you have a balance on one or more credit cards, you may have received offers to transfer the amount you owe to another credit card with a lower interest rate. The process, known as a balance transfer, may help you simplify and lower your payments.

You may be able to move the balance on one card to another. Instead of worrying about multiple payments each month, you could pay just one bill. And moving your balance could also make payments more manageable if you transfer it to a credit card with a lower interest rate.

If you’re considering a balance transfer, you may be asking yourself, “Do balance transfers hurt credit?” The answer is complicated, and it always depends on your unique situation. But by learning more about the process—and how credit scores are determined—you can better evaluate how a balance transfer might impact your credit.

Credit Score Basics

Your credit score is a measure of how likely you are to repay a loan on time. And the three main credit reporting agencies (Equifax®, TransUnion® and Experian®) calculate scores based on information from your credit report. Each agency uses its own proprietary scoring model, so you may find you have multiple scores.

A credit report includes information about credit inquiries. It also details information such as your credit limits, account balances and payment history, among other things. 

If you’re considering a balance transfer, you should know which changes might show up on your credit report and impact your score. 

Ways a Balance Transfer Could Affect Credit

The Consumer Financial Protection Bureau (CFPB) offers guidelines for building a good credit score. You don’t have to open a new card to transfer a balance. You might also be able to transfer to an existing account if you have cards from different issuers. But here are a few important factors, based on CFPB recommendations, to consider before transferring a balance to a new card:

  • The number of credit cards you apply for. Every time you apply for a credit card, the application triggers a hard inquiry into your credit file. If you apply for several new accounts during a short time, it might appear to lenders that your financial situation has taken a negative turn. The CFPB recommends applying only for credit you need.
  • The length of your credit history. Your credit history shows your experience paying loans on time. The more positive information available to creditors, the more information there is to indicate you’re a good candidate for credit. 
  • How much of your credit limit you’re using. A balance transfer can also impact another factor in your credit score: your credit utilization ratio. That’s a fancy way to say “how much of your available credit you’re using.” According to the CFPB, experts recommend keeping your credit utilization under 30%. So, if a balance transfer credit card increases your total available credit and helps you pay down your debt, you might see your credit improve. 

Confused about credit utilization and balance transfers? Here are a couple of examples:

Say you have one credit card, and you’ve reached its $5,000 limit. Your credit utilization would be 100%. If you’re approved for a balance transfer credit card with a $10,000 limit, you’d then have $15,000 in total available credit. With the original $5,000 debt, that puts your credit utilization at 33%. Keep in mind that this would mean you kept your original credit card after transferring the balance.

Alternatively, if you transferred a balance to an existing account, your credit utilization would remain the same. That’s because you’d still be using the same amount of your available credit. But you could still save on interest without having to apply for a new card.

The Bottom Line on Balance Transfers and Credit

There are a few ways a balance transfer might impact your credit. If a simplified, lower monthly payment helps you pay off your debt, you might see your credit score improve. But if you apply for multiple cards in a short period of time or close your longest line of credit, you might see negative effects.

And don’t forget, there are other financial implications you should consider in addition to your credit score. Balance transfers may come with fees and promotional rates that expire after a period of time. So make sure you understand how balance transfers work. With enough knowledge, you can make a decision that’s right for you.

We hope that you found this helpful. Our content is not intended to provide legal, investment, or financial advice or to indicate the Capital One product or service is available or right for you. For specific advice about your unique circumstances, consider talking with a qualified professional.

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