Do balance transfers hurt your credit?

Balance transfers are one way to consolidate credit card debt. They allow borrowers to move existing balances to another credit card account, ideally one with a lower interest rate. Coupled with other strategies, the move might help pay off credit card debt faster.

But do balance transfers hurt credit? The answer is complicated and depends on your situation.

Key takeaways

  • Transferring high-interest debt to a lower-interest account could make it easier to pay off credit card debt.
  • Factors like your payment history and credit utilization can influence the ways a balance transfer might affect your credit scores.
  • Some issuers may offer low or 0% introductory annual percentage rates (APRs) on balance transfer credit cards.
  • Issuers may charge a fee for a balance transfer.

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Does a balance transfer affect your credit scores?

How a balance transfer affects a person’s credit scores depends on how the transfer impacts factors like credit mix, credit age and new credit applications.

Credit score basics

Before you can consider what effect a balance transfer might have on your scores, it might help to quickly review some credit-scoring basics. Credit scores are used to predict how likely someone is to pay their debts on time. FICO® and VantageScore® are two companies whose credit-scoring models provide some of the most commonly used scores. You might see slight differences in your scores depending on which credit-scoring model is used.

Credit-scoring companies calculate credit scores based on information from credit reports. That information could include details about credit inquiries, credit limits, account balances and payment history, among other things.

And balance transfers could affect those factors, especially balance transfers to a new credit card.

How can balance transfers affect your credit scores?

The scoring factors that balance transfers could affect include:

New credit applications

Transferring a balance onto a new credit card? Any new card application can generate a hard inquiry, which can cause a slight drop in credit scores.

Credit age

Credit reports show length of credit history. Generally, the longer your credit history, the better your credit scores. 

If you open a new balance transfer card, it could lower the average age of your accounts. Closing an old credit card account after transferring a balance to your new account could lower the average age of your accounts too.

Credit mix

Your credit mix is your combination of revolving credit and installment credit accounts. Generally, a diverse credit mix is good for credit scores. That’s because it shows lenders you have experience using different types of credit. If you’re transferring a balance, keep in mind what type of account you’re opening and closing.

Credit utilization

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

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

Are there other downsides to a balance transfer?

Aside from the potential to negatively impact credit scores, transferring a balance could lead to some credit card fees, including:

Annual fees

Some balance transfer credit cards come with an annual fee.

Balance transfer fees

Even if a balance transfer offers 0% APR for a limited time, the credit card issuer may still charge a balance transfer fee. That fee could be a flat fee or a percentage of the transferred balance. It’s a good idea to weigh this fee against what you’re saving in interest.

Penalty APR or late fees

Keep in mind you’ll have to make monthly minimum payments on the balance transfer credit card. And if you didn’t transfer the entire balance from your original card, be sure to keep track of payments for that card too.

If you make a late payment or miss a payment altogether, you might lose your intro APR. Your credit card issuer might even charge a penalty APR after a late or missed payment. So be sure to know the terms and conditions of your new card.

Is a balance transfer a good idea?

A balance transfer could offer the following benefits: 

Promotional interest rates or introductory APRs

If you’re able to secure a lower interest rate, that could help you pay off your debt faster.

Many credit cards offer introductory interest rates for balance transfers. But that APR period is only for a limited time. 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. It’s also important to make payments on time every month. That’s because missed payments could mean the end of any promotional rate.

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 a hard inquiry on your credit report as part of a new credit application could have a temporary negative effect on your credit scores.

Debt consolidation

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.

Paying off a 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.

What to do after a balance transfer

Once you complete a balance transfer, 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 steps you can 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 in calculating credit scores. Payment history accounts for 40% of VantageScore 3.0 credit scores and 41% of 4.0 scores. FICO says that payment history makes up 35% of its credit scores. That’s why it’s important to make payments on time, every time. 

A late payment could stay on credit reports for up to 7 years and impact your credit-boosting progress. Automatic payments 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. Too many hard inquiries over a short period could hurt your credit even more. So it’s a good idea to apply for credit only when you need it.

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.”

Balance transfers in a nutshell

Everyone’s financial situation is different. That’s why there’s no clear-cut answer to whether a balance transfer would hurt or help your credit scores. A balance transfer could help improve your credit scores if it helps you simplify your payments and pay down debts faster. If you can’t make payments on time or if the transfer negatively affects credit-scoring factors like credit age, a balance transfer might hurt your credit scores. 

If you’re ready to explore your balance transfer options, you can explore balance transfer credit cards from Capital One. Or you can see if you’re pre-approved without hurting your credit scores.

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