Does A Balance Transfer Affect Credit Scores?

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Dear Experian,

Does the simple act of making a balance transfer lower your credit score, and if so, how much?

- UOU

Dear UOU,

Any change in your credit use can affect your credit score, so it's possible that a balance transfer from one credit card to another could negatively impact you. However, any decrease in your scores would likely be temporary, and over time this could be a positive change.

How Transferring a Balance Impacts Scores

Transferring a balance from one credit card to a new card that you just opened may add an inquiry to your file, which could cause a temporary, small decrease. However, you aren't taking on new debt and, assuming you have a new credit card, you are likely increasing your available credit.

If you leave the old account open and your total balance on all credit cards stays the same, opening a new credit card account should decrease your total balance-to-limit ratio, or utilization rate. A lower utilization rate may increase your credit scores.

Your balance-to-limit ratio also is called your utilization rate. It is simply a comparison of your balances to your available credit. Credit scores look at both your overall utilization rate as well as the utilization rate on each of your individual credit card accounts. A low utilization rate on each card and on the total of all your cards is considered a sign of responsible credit use and helps your credit scores.

To calculate your overall utilization rate, add up all of your credit card balances and divide that number by the total of all of your credit limits.

A Lower Interest Rate Can Help You Reduce Your Balance

An added benefit, particularly if the new card has a lower interest rate, is that you might be able to pay off the balance faster because more will go to the principle amount. That could be a great gift during the holiday season.

The trick is to not begin accumulating new debt on the card you transferred the balance from. If you transferred the entire amount and now have a zero balance on the card, it can be very tempting to start charging on the old credit card. After all, you now have all of that credit available.

However, that will increase your debt and your utilization rate, which can make it harder to pay the balances due and will very likely hurt your credit scores.

If you do use the old account, be sure to pay the entire balance in full at the end of each billing cycle to avoid carrying a balance and paying interest charges.

Thanks for asking.
The "Ask Experian" team

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