Do balance transfers hurt your credit?

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, budget effectively 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.

Key Takeaways

• Transferring high-interest debt to a lower-interest account could make it easier to pay off the balance.
• Different factors—like payment history and credit utilization—can influence the ways a balance transfer might affect your credit scores.
• Some credit card issuers may offer low or 0% introductory annual percentage rates (APRs).
• Issuers may charge balance transfer fees, often a percentage of the total amount being transferred.

A balance transfer could be a good way to tackle high-interest debt or consolidate payments. But it could also affect your credit scores. 

It’s hard to say exactly how a balance transfer could impact someone’s credit. That’s because several factors—like credit mix and credit age—might determine whether a balance transfer will help or hurt their scores. 

For example, simply transferring your balance to an existing credit card may not cause credit scores to change. But if the balance transfer requires you to open a new credit account, you could see a slight dip in your scores.  

Depending on your financial situation and spending habits, a balance transfer may help you manage debt. And if you use credit responsibly—by making on-time payments and keeping credit utilization low—a balance transfer could help improve credit scores over time. 

Wondering if a balance transfer could be the right move for you? Before you make a decision, you may want to review some credit-scoring basics.

Credit score basics

Your credit scores are a measure of how likely you are to repay a debt on time. 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.

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. 

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. The scoring factors that could be affected by balance transfers include:

New credit applications

Applying for credit creates hard inquiries. 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—or 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 (CFPB) 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.

Everyone’s financial situation is different. Whether a balance transfer is right for you depends on your unique circumstances. That said, balance transfers might have some benefits if you plan to: 

Use a promotional interest rate or introductory APR

One of the perks of a balance transfer is that it might help you get a lower interest rate. And a lower interest 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. 

If you’re considering a balance transfer, you could see if you’re pre-approved for a 0% introductory APR credit card. Just be aware that applying for a new credit card could lead to a hard inquiry on your credit report.

Consolidate debt

In some cases, a balance transfer could help consolidate credit card debt—or other loans—into a single monthly payment. If you’re struggling to keep up with multiple bills, a balance transfer may make it easier to manage the debt and make on-time payments. 

Pay off the balance

Moving debt from one account to another won’t make it disappear. But if you plan to pay off the balance, transferring debt to a low-interest credit card could offer some benefits. 

If you qualify for a balance transfer credit card with 0% introductory APR, you could save money by paying off the debt before interest accrues. But if you fall behind on payments, you may face late fees or other penalties that could increase your outstanding balance. So it’s important to consider how the balance transfer’s monthly payments will fit into your budget. 

A balance transfer could help save money on interest, but it may also come with certain costs. 

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 or late fees

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 credit card 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 or interest rate that applies after the promotional or introductory period ends.

Once the transfer is complete, it’s time to focus on paying down the balance. Some people may see an initial dip in their credit scores. If that’s the case, there are some steps you could take to help pay down the debt and improve your credit scores:

Make payments on time—every time

Payment history is one of the most important factors of your credit health. In fact, it makes up 35% of FICO® scores. That’s why it’s important to make payments on time, every time. Doing so might show lenders you have a record of using credit responsibly and help you boost your scores. 

But a late payment could stay on credit reports for up to seven years and impact your credit-boosting progress. So you may want to consider setting up automatic payments. This could help you stay on track and reduce the risk of missed payments and late fees. 

Limit new credit applications

Lenders may perform a hard inquiry when you apply for a new loan or credit card. A hard inquiry may appear on your credit report and could lower your credit scores. Applying for too much credit in a short period of time could signal to lenders that your financial situation has changed. As such, they may be less willing to extend additional loans or lines of credit.  

Applying for credit only when you need it could minimize the number of hard inquiries on your credit reports and, in turn, help boost your credit scores. 

Consider your longest line of credit

Credit age refers to the average amount of time that your credit accounts have been open. As the CFPB puts it, “The more experience your credit report shows with paying your loans on time, the more information there is to determine whether you are a good credit recipient.” 

Closing an established account could lower the average age of your credit history and impact your credit scores. So if you transfer a balance, you might want to consider your credit age when deciding whether to close an existing account. 

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 can’t pay down the balance, you might see negative effects on your credit.

Keep in mind that balance transfers may come with fees. And they may come with introductory or promotional rates that expire after a period of time. 

Are you ready to explore your balance transfer options? Reading more about the balance transfer process may help you make a decision that’s right for you. You could also consider a 0% introductory APR credit card from Capital One. You can see if you’re pre-approved without hurting your credit scores.