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Topics addressed on June 6, 2012:
Impact of balance transfers on credit scores
I have a question about balance transfers. I have a credit card with a balance that I am paying interest on. My husband has an existing credit card balance transfer offer at 0% for 12 months. That card is under his name and it has no balance. If I transfer my balance to his offer, how will that affect our credit score? Also, do any balance transfers affect your credit scores as long as you do not utilize any of the accounts after the transaction?
The first thing to understand is that you and your spouse have separate credit reports. You also will have separate credit scores because your credit reports will be scored individually when you apply for credit.
Therefore, transferring a balance from a credit card that is in your name to one that is in his name only would affect both of your credit reports and scores.
Your report would reflect that the balance had been paid in full, which might help your scores, because your utilization rate, also called your balance to limit ratio, will decrease. However, you would lose the positives of having an open, active credit card account which helps your score if you make all your payments on time and your utilization is not too high.
On the other hand, your husband’s report would reflect an increase in his utilization rate because the additional debt is being added to his credit account. That could harm his scores.
Get a copy of your personal credit reports and purchase a credit score for each of you. The credit score report will include a list of the risk factors that are most affecting your individual credit scores. If your husband’s risk factors indicate that the balances on his credit cards are too high, you may decide against adding to his balance. Conversely, if your husband has no outstanding balances and you do, it may make sense to go ahead with the transfer.
And, if both of you have other well managed accounts and your reports score high, then making the decision to transfer the balance should be based on what makes the best financial sense to save money and not just the impact on your scores.
Using an account after making a balance transfer may trigger contractual actions by the lender such as increased interest rates or fees, but that has no bearing on your credit report. Make sure you fully understand all the fees associated with the transfer and how much it will cost you if you have not paid the balance in full at the end of the 12 months and then make the decision that is best for you.
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- The "Ask Experian" team