Do Balance Transfers Hurt Your Credit Score?

A balance transfer is when you shift the money you owe from one credit card to another, usually to one with a lower interest rate. People often do this to make it easier to handle their debts and pay less interest.

With a balance transfer credit card, you can move your debts from different places to a new card. This new card might have a really low or even no interest rate for a while, like 0%. Then, you can pay off all your debts in one go without any extra interest for a period, which could be 12, 15, or 18 months, depending on the card.

Balance Transfer Fee	Example Calculation
3%	For a $7,000 balance transfer:
	Fee: $7,000 * 3% = $210
	Total balance to pay off: $7,210
4%	For a $7,000 balance transfer:
	Fee: $7,000 * 4% = $280
	Total balance to pay off: $7,280
5%	For a $7,000 balance transfer:
	Fee: $7,000 * 5% = $350
	Total balance to pay off: $7,350

Balance transfers can help you manage what you owe better, but they could also have an impact on your credit rating. When you’re thinking about moving your debt from one credit card to another, it’s important to know how it might change your credit score. Let’s take a look at how they can affect it.

Best Balance transfers card Details:

Card Name	BankAmericard® Credit Card	Wells Fargo Reflect® Card	Discover it® Balance Transfer	US Bank Visa Platinum Credit Card
Intro APR for Balance Transfers	0% for 18 billing cycles	0% for 21 months	0% for 18 months	0% for 18 billing cycles
Ongoing APR Range	16.24% – 26.24%	18.24% – 29.99%	17.24% – 28.24%	18.74% – 29.74%
Balance Transfer Fee	3% (first 60 days), then 4%	5% of transferred amount ($5 minimum)	3% intro fee; up to 5% fee on future transfers	3% intro fee on transfers made within 60 days, then 5% after (min $5)
Additional Details	Available on Bank of America’s website or by calling (800) 322-7707	Available on Wells Fargo’s website	Available on Discover’s website	Available on US Bank’s website

Fico 5 Things influenced Credit Score:

MyFICO.com says that your credit score can be influenced by five main things:

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Payment history (35%): Lenders want to know if you’ve paid past credit accounts on time. This is crucial for them to assess the risk of giving you credit. It’s the most significant factor in your FICO Score.

Amounts owed (30%): Just having credit accounts and owing money doesn’t automatically make you a high-risk borrower with a low FICO Score. However, if you’re using a lot of your available credit, it could suggest that you’re overextended, which makes banks worry about the possibility of you not being able to pay back what you owe.

Length of credit history (15%): Generally, having a longer credit history is good for your FICO Scores, but it’s not a must for having a good credit score. Your scores look at things like how long your credit accounts have been open, including the age of your oldest account, the age of your newest account, and the average age of all your accounts. It also considers how long it’s been since you’ve used certain accounts.

Credit mix (10%): FICO Scores look at the variety of credit you have, such as credit cards, retail accounts, instalment loans, finance company accounts, and mortgage loans. You don’t need to have one of each, but having a mix of different types of credit can be beneficial.

New credit (10%): Research suggests that opening multiple credit accounts in a short time poses a higher risk, especially for people who don’t have a long credit history. So, if you’re applying for lots of credit in a short period, it could lower your FICO Scores.

Learn About: How to Pay off $20,000 in Credit Card Debt

Is a Balance Transfer Worth It? Here’s What You Need to Know

Contemplating a balance transfer? It’s crucial to weigh the pros and cons before diving in. Here’s a breakdown of what to consider:

1. Potential Savings:

A balance transfer should ultimately save you money. If it doesn’t, it might not be worth the hassle. Keep in mind that most balance transfers come with a fee, typically ranging from 3% to 5%. Ensure you factor this fee into your cost analysis.

2. Illustrative Example:

Let’s say you’re carrying a $10,000 balance on a card with a 15% interest rate, aiming to pay it off within 12 months. Without a balance transfer, you’d expect to pay around $830 in interest. However, transferring it to a card offering a 0% APR for 12 months would eliminate interest costs.

Even with a 3% balance transfer fee ($300 in this case), you’d still come out ahead by $530.

3. Debt Management:

By transferring your balance to a card with a lower interest rate, you effectively reduce the cost of maintaining that debt. This allows you to allocate more funds towards paying down the principal amount, rather than being bogged down by interest payments.

4. Understanding Credit Implications:

• It’s essential to recognize what a balance transfer does not do for your credit score:
  • It doesn’t reduce your total debt amount; it merely relocates it to a new card.
  • Any unpaid interest accrued before the transfer remains your responsibility.
  • The original account from which you transferred the debt will still be reflected on your credit report, regardless of closure. Any missed payments on this account will continue to impact your credit score.

In essence, while a balance transfer can be a smart financial move to reduce interest costs and expedite debt repayment, it’s crucial to understand its implications and ensure it aligns with your overall financial goals.

How balance transfers hurt your credit score?

When you apply for a new credit card to transfer your balance, it triggers a hard inquiry on your credit report. This inquiry can temporarily lower your credit score by a few points, and it stays on your report for up to two years.[1]

Furthermore, getting a new card affects the length of your credit history. Adding a new card can decrease the average age of your credit accounts, potentially reducing your score. This impact is more pronounced if you have fewer credit cards compared to having many.

Nevertheless, using a balance transfer to pay down debt and manage credit responsibly can help offset or even eliminate the short-term decline in your credit score over time. By making timely payments and demonstrating prudent credit behaviour, you can gradually enhance your creditworthiness.

Balance transfers credit score Impacts :

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Hard Inquiry (Approximate Impact): A hard inquiry typically reduces the credit score by around 5 to 10 points.

Impact on Length of Credit History (Approximate Impact): Opening a new credit card account could decrease the average age of credit accounts by, say, 6 to 12 months, resulting in a potential decrease of 2 to 5 points.

Total Estimated Impact: Considering both factors, the initial impact on the credit score could range from 7 to 15 points.

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Hard Inquiry (Approximate Impact): Similar to other cards, a hard inquiry could lead to a temporary decrease of 5 to 10 points in the credit score.

Impact on Length of Credit History (Approximate Impact): Opening a new card may reduce the average age of credit accounts by, for instance, 6 to 12 months, resulting in a potential decrease of 2 to 5 points.

Total Estimated Impact: Taking into account both factors, the initial impact on the credit score might range from 7 to 15 points.

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Hard Inquiry (Approximate Impact): A hard inquiry could lead to a temporary reduction of 5 to 10 points in the credit score.

Impact on Length of Credit History (Approximate Impact): Introduction of a new card might decrease the average age of credit accounts by, let’s say, 6 to 12 months, resulting in a potential decrease of 2 to 5 points.

Total Estimated Impact: Considering both factors, the initial impact on the credit score may range from 7 to 15 points.

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Hard Inquiry (Approximate Impact): A hard inquiry could result in a temporary decrease of 5 to 10 points in the credit score.

Impact on Length of Credit History (Approximate Impact): Opening a new credit card account might decrease the average age of credit accounts by, for instance, 6 to 12 months, leading to a potential decrease of 2 to 5 points.

Total Estimated Impact: Combining both factors, the initial impact on the credit score could be around 7 to 15 points.

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How a balance transfer can help your credit score:

Reduces the Number of Open Credit Lines:

• By consolidating several credit card balances into a single balance transfer, you’re effectively reducing the number of credit accounts with outstanding balances.
• The fewer accounts you have with balances, the more positively it impacts your credit score.
• Paying off multiple lines of credit simultaneously can lead to a significant boost in your credit score.

Lowers Your Credit Utilization Ratio:

• Your credit utilization ratio is the amount of credit you’re currently using compared to your total available credit.
• Credit bureaus prefer to see a utilization ratio below 30%, but lowering it from any point can improve your score.[2]
• If, for example, you owe $10,000 on $30,000 in combined credit limits (a 33% ratio), but then get a new card with a $10,000 limit, your ratio immediately drops to 25%.

Provides Paid-Off Credit Lines:

• Paying off open credit lines through a balance transfer is viewed favourably by credit bureaus.
• Having paid-off accounts contributes positively to your credit score.
• However, it’s crucial not to accumulate new balances on the lines you’ve paid off. Doing so would negate the credit score benefit gained from paying them off.

Bottom Line:

while a balance transfer may initially affect your credit score, strategic planning and commitment to debt repayment can turn it into a stepping stone towards financial freedom and improved credit health.