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Do Balance Transfers Hurt Your Credit?

Learn how balance transfers hurt your credit, how they improve your credit, and three balance transfer cards you should definitely consider.
Tom
Tom Cecil

December 6, 2021

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All content is written by editorial staff or writers engaged by the site, not by marketers/sales staff. Editors responsible for producing the content are not in contact or affiliated with any advertiser and are not compensated based on success of the affiliate links. All decisions regarding recommendations are determined separately from advertising relationships. Any opinions, analyses, reviews or recommendations expressed are those of the author's alone, and have not been reviewed, approved or otherwise endorsed by any card issuer.

Do balance transfers hurt your credit? 

A balance transfer is a popular debt consolidation method that can help you pay down debt faster while saving you some money in interest charges. 

However, performing a balance transfer can alter your credit score by affecting the number of hard inquiries you have, and your credit utilization ratio. 

So, do balance transfers hurt your credit? 

In this article, we’ll look at when a balance transfer hurts your credit, when a balance transfer improves your credit, how to continue building credit after the transfer, and three great balance transfer cards to make the most of it.

This Article Contains: 

(Click on a link to jump to the specific section) 

Let’s dive in.

When Do Balance Transfers Hurt Your Credit?


There are two main ways a balance transfer can reduce your credit score: 

1. Hard inquiries and your credit score

The actual balance transfer itself won’t affect your credit much, if at all. 

The real effect comes from applying for a specialized balance transfer card.

The card issuer will perform a hard inquiry on your credit report when you apply for a balance transfer credit card. A hard inquiry allows the credit card company to gauge how likely you are to make the monthly payment by analyzing your credit score.  

If your credit score isn’t high enough, the card issuer may deny your application. However, you should qualify for a good balance transfer offer with a credit score of at least 670. If you have multiple hard inquiries, it can signal to lenders that you may not be a responsible borrower. 

Further, a hard inquiry can stay on your credit report for up to two years and bump up to five points off your credit score. 

To avoid being rejected, check your credit score and the issuer’s website to ensure you stand the highest chances of approval. 

Tip: If you need to improve your credit score, consider applying for a credit-building card. Check out our list of the best cards for limited credit

2. Average account age

As is the case when opening any new credit card, obtaining a new balance transfer card can reduce the average age of your credit history. 

Lenders like long credit histories because experienced borrowers tend to use their credit more responsibly. About 15% of your credit score is determined by the length of time your credit account has been open.  

Although your credit score may take a knock, using a balance transfer credit card strategically to pay down debt can outweigh any short-term dings in the longer term.
 

When Do Balance Transfers Improve Your Credit?


The actual balance transfer itself won’t really affect your credit. 

In fact, it can go a long way to improving it.

How?

Let’s find out:

A. Paying off debt easily

Reducing your existing credit card debt is central to improving your credit score. A balance transfer card can help you by making it easier for you to clear up all your existing debt.

As balance transfer cards often include an introductory APR offer, you can take advantage of the lower interest rate to pay down your credit card debt faster. 

Each dollar you don’t have to pay in interest rate charges is a dollar you can put towards your debt. Your outstanding amounts account for 30% of your credit score, so paying off your credit card debt faster sends the kind of signals that result in better credit scores. 

However, don’t forget about the balance transfer fee before going ahead. Even if your new card offers an intro APR offer, most still include a balance transfer fee of between 3% and 5% of the amount you want to transfer. 

B. Better credit utilization ratio

Balance transfers can also help when it comes to your credit utilization ratio.

Generally, it’s best to keep your credit utilization ratio below 30%. Doing so shows the credit card company you’re not racking up debt you can’t repay. 

If you have balances with multiple credit cards and use a credit card balance transfer to move them all to one account, you can lower your credit utilization ratio.

Wondering how to continue building your credit after you’ve completed the credit card balance transfer? 

Let’s find out. 

How To Continue Building Your Credit After The Balance Transfer


Moving existing credit card debt to your credit card will make it far easier to manage your debt and dodge penalties. 

Avoiding late payments is one the most important things you can do to improve your credit, as it counts for around 35% of your score. Credit card delinquency can also come with other consequences, like late fees, making it even harder to pay off all your debt.

So what can you do?

Once you’ve completed the credit card balance transfer, there are a few more things you can do to keep your credit solid:

1. Keep your old accounts open

Once you’ve received your new credit card, consider keeping your old credit card accounts open. 

Doing so can improve your payment history, improve the average age of your accounts, and lower your credit utilization ratio. All of which are important for improving your credit. If your old credit card includes an annual fee you’d rather not pay, weigh the savings you’d receive against the potential downsides.

2. Avoid applying for new credit

Limiting the number of hard inquiries on your credit history, as well as the amount of credit you take, is a solid step in improving your credit score. 

3. Avoid making new purchases 

Paying down your debt before the end of the introductory APR offer is key to making the most of your balance transfer card. New purchases will only add to that debt and may mean missing the deadline. 

Bear in mind that once the offer expires on your new credit card, your card’s interest rate will spike, and interest accrued on an outstanding balance could negate any potential savings. 

4. Make more than the minimum payment 

The best thing you can do for your credit score is build good credit habits, like making more than the minimum payment. 

Now, let’s say you find yourself in a situation where you’ve qualified for a balance transfer card, but with a lower credit limit than you were hoping. 

What’s the best course of action in this situation? 

Let’s take a look.

What To Do If Your Credit Limit Isn’t Enough For All Your Debt


Ideally, you’d want to find a credit card with a much higher credit limit than the amount you’re looking to transfer. 

Unfortunately, unless you’ve qualified for pre-approval, the card issuer generally won’t disclose your credit limit until you’ve applied and they pull your credit history. 

You may receive approval for the balance transfer card only to find that the credit limit is lower than you were hoping for. Considering you shouldn’t use more than 30% of your available credit limit, immediately exhausting the entire credit limit on a new card can have a negative impact on your credit score. 

In this case, transfer what you can and make a plan about how you’ll pay back the remaining credit card balance. With regular on-time payments, you can request a credit limit increase, but it’s up to the card issuer to approve the request.

You could also contact your existing card issuer and ask if they’re willing to lower rates on whatever balance you couldn’t transfer. 

There are also a few alternatives you could consider, such as a personal loan. Bear in mind that a personal loan will include an interest rate, and you may be charged an origination fee.

3 Excellent Balance Transfer Cards 

 

Wrapping Up


Balance transfers can be an excellent debt consolidation tool, helping pay down debt faster while avoiding interest payments. It’s important to be aware that, although the balance transfer itself won’t hurt your credit score, applying for a balance transfer credit card will. 

With that in mind, using a balance transfer card strategically can be an essential component in improving your credit score. The key is making the most of the intro APR period and once you’ve completed the balance transfer, be sure to keep your old accounts open and avoid new purchases with the card.

Interested in finding out more about balance transfer cards? 

Check out our list of the top balance transfer cards available today.

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