Do Balance Transfers Hurt Your Credit?

Learn how a balance transfer could impact your credit scores

You might be considering a balance transfer if you’re carrying a balance on one or more credit accounts. A balance transfer could help you consolidate debt or lower your interest rate on an existing balance. And that could help you save on interest and pay off your debt faster. 

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

Understanding Credit Basics Before a Balance Transfer

Before completing a balance transfer, it’s important to understand a few credit basics.

Your credit scores are a measure of how likely you are to repay a loan on time. And credit-scoring companies calculate credit scores based on information from your credit reports. That information could include details about credit inquiries, your credit limits, account balances and payment history, among other things.

Keep in mind that there are multiple credit-scoring models and credit scores. Some credit-scoring companies—like FICO® and VantageScore®—even have different versions of their own scores. So you might see slight differences in your scores depending on which credit-scoring model was used.

If you’re considering a balance transfer, you should know which changes might show up on your credit reports and how they could impact your scores.

How a Balance Transfer Could Affect Your Credit

Even though you have multiple credit scores that may be calculated differently, your credit scores are typically based on some of the same information from your credit reports. And that information could be affected by balance transfers—especially balance transfers to a brand-new credit card. And if the information in your credit reports is affected, it could affect your credit scores too.

The information that could be affected by balance transfers includes the following.

New Credit Applications

Applying for credit creates hard inquiries. And too many hard inquiries over a short period of time could have a negative impact on your credit scores.

Credit Age

Credit reports show how long you’ve had your accounts open. And the longer your credit history, the better it could be for your credit scores. But if you open a new credit card for a balance transfer, it could lower the average age of your accounts. And if you close an old account after transferring a balance to your new card, that could lower the average age of your accounts too. 

Credit Mix

The more diverse your credit mix—your combination of revolving credit and installment credit accounts—the better it could be for your credit scores. That’s because a diverse credit mix shows lenders that you have experience using different types of credit responsibly.

A balance transfer could affect the diversity of your credit mix. But whether it has an effect depends on the situation. For example, transferring a personal loan balance—a type of installment credit—to an existing credit card—a type of revolving credit—could make your credit mix less diverse. But a balance transfer from one credit card to another might not have an effect on your credit mix.

Credit Utilization

Your credit utilization ratio is a measure of how much of your available credit you’re using. For a good credit score, the Consumer Financial Protection Bureau says that experts recommend you keep your credit utilization below 30% of your available credit.

Credit utilization only applies to revolving credit accounts like credit cards, personal lines of credit and home equity lines of credit. Your credit utilization doesn’t take installment credit—like auto loans, mortgages and student loans—into account.

That means a balance transfer could either hurt or help your credit utilization—and credit scores.

For example, consider an auto loan balance transfer to a credit card. This kind of balance transfer would likely increase your credit utilization—no matter whether you transfer that balance to an existing credit card or to a brand-new one.

On the other hand, a balance transfer from an existing credit card to a brand-new credit card could improve your credit utilization. That’s because opening a new credit card increases your amount of available credit. But keep in mind that your credit utilization might not improve if you close the old card.

Is a Balance Transfer Right for You?

Everyone's financial situation is different. Whether a balance transfer is right for you depends on your unique circumstances.

Here are a couple of things to keep in mind.

Introductory and Promotional Interest Rates

One of the perks of a balance transfer is that it might help you get a lower interest rate. And a lower rate could help you pay less in interest and pay off your debt faster.

Many credit cards offer introductory or promotional interest rates for balance transfers. But those rates are only for a limited time—they don’t last forever. So if you take advantage of a low introductory or promotional rate, be sure you know when the low rate will expire and when the standard rate will apply.

Balance Transfer Fees

Balance transfers aren’t necessarily free. Even if a balance transfer comes with 0% annual percentage rate (APR) for a limited time, you may still be charged a balance transfer fee. That fee could be a flat fee, or it could be a percentage of the transferred balance. So keep in mind that a balance transfer might not help you save if the fees cost more than what you’re saving in interest.

Penalty APR

After transferring one or more balances to a credit card, you still have to make monthly minimum payments on that card. If you make a late payment or miss a payment altogether, you might lose your introductory or promotional interest rate. Your issuer might even charge a penalty APR after a late or missed payment. And that penalty APR might be much higher than the standard APR that applies after the introductory or promotional period.

Be sure to know the terms and conditions of both your card and the introductory or promotional offer.

The Bottom Line on Balance Transfers and Your Credit Scores

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 scores improve. But if you apply for multiple cards in a short period of time or close your oldest line of credit, you might see negative effects on your credit.

And don’t forget that there are other things you should consider in addition to your credit scores. Balance transfers may come with fees. And they may come with introductory or 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.

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Government and private relief efforts vary by location and may have changed since this article was published. Consult a financial adviser or the relevant government agencies and private lenders for the most current information.

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

Your CreditWise score is calculated using the TransUnion® VantageScore® 3.0 model, which is one of many credit scoring models. It may not be the same model your lender uses, but it can be one accurate measure of your credit health. The availability of the CreditWise tool depends on our ability to obtain your credit history from TransUnion. Some monitoring and alerts may not be available to you if the information you enter at enrollment does not match the information in your credit file at (or you do not have a file at) one or more consumer reporting agencies.

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