How Does a Balance Transfer Affect Your Credit Score?

Quick Answer

A balance transfer may temporarily hurt your credit due to a hard inquiry on your credit report and a reduced average account age. But it may also reduce credit card balances and credit utilization, which can improve your credit score.

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A balance transfer can improve your credit over time as you work toward paying off your debt. But it can hurt your credit if you open several new cards, transfer your balance multiple times or add to your debt.

A balance transfer credit card allows you to move existing debts to a new card, which typically offers a promotional annual percentage rate (APR) as low as 0% for a period of time. You can consolidate debt from multiple sources into one monthly payment and pay down the total interest-free over 12 to 21 months, depending on the card. Paying off debt and having a lower overall credit utilization rate typically has a positive impact on your credit score.

Here's what you need to know about how a balance transfer can affect your credit.

Can a Balance Transfer Improve Your Credit?

Completing a balance transfer can improve your credit. Here's how.

Lower Credit Utilization

Moving multiple debts to a single balance transfer credit card could decrease your overall credit utilization rate, or the percentage of available revolving credit you're using. Lower credit utilization can improve credit scores.

When you get a new card, your total credit limit will increase, and after moving balances to that new account, the utilization rates on the previous accounts will appear as 0% on your credit report (assuming you pay off the full balances on the other accounts). That lowers your average utilization, which accounts for 30% of your FICO® Score , the credit score used by 90% of top lenders.

Example: Let's say you have two credit cards: one with a $1,000 credit limit and a $500 balance, and another with a $3,000 credit limit and a $2,000 balance. That would give you a total credit utilization rate of 63%. If you get a balance transfer card with a $5,000 credit limit and move those two card balances to it, your total credit limit rises to $9,000 and your total utilization drops to 28%. That's under the 30% maximum credit utilization rate that experts recommend—and significantly lower than the 63% you had previously, which could help your scores.

Reduced Balance Over Time

The goal of getting a balance transfer card is to make it possible to pay off debt at a lower cost. If you take advantage of the 0% APR period and use your interest savings to pay down the balance, your debt will decrease over time. That can have a major impact on your credit score.

Streamlined Bills

Payment history accounts for 35%, the largest share, of your FICO® Score. That means on-time payments over time can do the most to help your scores, while late or missed payments can have the biggest negative effect.

Having just one credit card bill to pay each month, as opposed to several, may help ensure you make that payment on time. That, in turn, can have the largest positive impact on your credit over time.

Can a Balance Transfer Hurt Your Credit?

Opening a balance transfer credit card can hurt your credit. Here's what to watch out for:

Hard Inquiries

When you apply for a balance transfer credit card, a hard inquiry will appear on your credit report. One hard inquiry can have a small, temporary effect on your scores—but multiple hard inquiries in a short time can have a greater negative effect. When shopping for a balance transfer card, compare card offers before submitting a full application and opt for just one card to keep inquiries to a minimum.

Lower Average Account Age

As with any new line of credit, opening a balance transfer credit card could negatively affect your credit by lowering the average age of your accounts. Lenders value long credit histories because experienced borrowers are more likely to use their credit appropriately.

While opening a new account could temporarily cause a dip in your credit score, the benefits of strategically using a balance transfer card to pay off debt will generally outweigh it. To be safe, avoid closing older accounts around the time you open a new one so you're not doubly affected.

What to Do After a Balance Transfer

After making a balance transfer, take these steps to make sure you're in the best position possible to pay off debt and keep your credit strong:

  1. Pay down your balance. Calculate how much you'll need to put toward your credit card payment each month to get out of debt during the intro 0% APR period—and stick to it. Look for ways to stay motivated by tracking your progress and treating yourself to small rewards at certain milestones.
  2. Set up autopay. Make all your monthly payments on time to protect your credit score, since credit scoring models weigh your payment history heavily. Set up automatic payments from your checking account to your credit card for a specific amount each month. And, if you find yourself with extra funds during a given month, make additional payments to pay off the card faster.
  3. Avoid making purchases with your balance transfer card. The best use of a balance transfer credit card is to pay off debt. Adding to that debt could make it more difficult to get rid of the balance before your promotional 0% APR offer ends. When the intro period is over, your APR will jump to the standard rate—and if interest accrues on an outstanding balance, you could negate any savings the promotional period provided.
  4. Avoid closing old credit cards. To keep your account history as long as possible, it's generally best to keep old, unused accounts open—especially your oldest account. If an account has a high annual fee that you're unable to afford, weigh the benefits of closing it against the drawbacks. Your card issuer may be willing to downgrade your credit card to one that doesn't charge an annual fee.
  5. Avoid applying for new credit. Limit the number of hard inquiries on your credit report and only apply for new credit—including loans—when you absolutely need to.
  6. Create a budget. To avoid accruing additional debt, make a budget and regularly track your spending. The process of building a budget can be a useful exercise in itself, since it can help you notice recurring expenses that you don't need and can safely cancel to quickly save money.

The Bottom Line

The goal of getting a balance transfer credit card is to pay down credit card debt at a lower interest rate, which could help you get debt free faster. That means it's typically a positive move for your credit. While you may see a dip in your credit score in the short term, used appropriately, a balance transfer can be part of a strategy to improve your finances overall. Ideally, you'll not only experience the credit score benefits of debt freedom, but also the peace of mind it brings.