Do Balance Transfers Hurt Your Credit?


Do Balance Transfers Hurt Your Credit?

Whether a balance transfer helps or hurts your credit depends on whether you open a new balance transfer card or use an existing card, as well as how you use the balance transfer to pay off existing debt.

Let’s take a deeper look into how balance transfers can affect your credit.

Using an existing card for a balance transfer

Since credit scores can be calculated using different models that weigh factors like credit utilization and payment history differently, the effect of transferring a large balance onto an existing card depends on which credit score model is used to calculate your credit score.

Credit utilization ratio

Your credit utilization ratio is the percentage of your revolving credit currently in use. A lower credit utilization ratio is generally better for your credit scores.

If the relevant credit score model takes your total existing balances and divides them by the combined credit limits of all accounts, transferring your balance to another open card may have no effect on your credit score. As you are moving a balance to another card without adding any credit limit, the amount you owe divided by your available credit limits will stay the same after the transfer.

When transferring a balance, keep in mind that some credit score models may also consider the utilization ratio on your individual credit accounts and factor in the account with the highest utilization. For example, if you used all the available credit on one of your credit card accounts, the high utilization ratio on this account could have a negative impact on your credit score. Additionally, credit score models may consider other data on credit utilization, such as your average utilization ratio.

Opening a new card account for a balance transfer

Opening a new balance transfer credit card can help your credit score by increasing the overall amount of credit you have available, improving your credit utilization ratio.

However, at the same time, a new card will lower your average account age, which makes up part of your credit score. And if you apply for several balance-transfer cards at once, that can throw up a red flag to creditors. When you apply for a credit card, the credit card company will typically do a hard credit check. This can lower your score by a few points. Hard credit checks can stay on your credit report for up to 2 years and affect your credit score for up to a year.

Repeatedly transferring balances

You may see low introductory APR offers for balance transfer credit cards as a way to delay interest from accruing against your debt. If that window is about to expire, but your debt hasn’t been paid down, you may think that moving the debt again to another low intro APR card can buy you more time.

But with each application for a new card, your credit score may take a minor hit. And multiple requests within the last year can negatively impact your credit score to the point where earning approval for another card may become more difficult. Eventually, your debt may have no place to land without earning interest.

Because of this, it is best to use balance transfers with low introductory APR offers as a window for you to significantly pay down your debt, not to simply avoid interest payments for a while.

How to potentially help your credit score with balance transfers

1. Find a new credit card with a low introductory APR

To maximize the impact of a balance transfer, consider opening a new credit card account that features a low intro APR. While your overall account age will drop, you may be able to get more credit while putting a pause on your higher interest charges for a time.

2. Apply for only one card

Decide on the balance transfer card you will likely qualify for and apply just once. Multiple credit applications can negatively affect your credit score.

3. Use the card's low introductory APR period to pay down debt

Balance transfer cards typically offer low interest rates on balance transfers for a limited amount of time. Use this low-interest period to make as big of a dent in your debt as possible so you can avoid higher interest rates on your debt when the introductory period expires. Paying off debt can reduce your credit utilization and help improve your credit.

4. Make card payments on time

When you transfer a balance, you’re still required to make the minimum payments on time each month. If you fail to pay the minimum amount due on time, you may lose your introductory rate depending on the terms and conditions of your card.

5. Know when your interest rate will increase

After the introductory period for balance transfers ends on a new card, your interest rate will go to the standard rate for balance transfers. Your unpaid balance will then be subject to this higher rate - which can drive your monthly payments higher. Before you commit to a new balance transfer card, understand what the APR will be when the introductory rate expires and how long the introductory rate period lasts.

Disclosure: This article is for educational purposes. It is not intended to provide legal, investment, or financial advice and is not a substitute for professional advice. It does not indicate the availability of any Citi product or service. For advice about your specific circumstances, you should consult a qualified professional.

Additional Resources

  • Utilize these resources to help you assess your current finances & plan for the future.

  • Learn how FICO® Scores are determined, why they matter and more.

  • Review financial terms & definitions to help you better understand credit & finances.