How do balance transfers impact credit scores?

Balance transfers are a practical way to transfer balances on high-interest credit cards to a credit line with a lower interest rate.

How can a balance transfer hurt my credit score?

When you apply for a balance transfer, some lenders require a hard inquiry on your credit report. A hard inquiry can drop your credit score by up to 5 points. The inquiry will appear on your credit history for up to two years. However, some new lenders are providing balance transfers with no credit check required. 

Once you’re approved, you’ll still need to make regular on-time payments, which will get reported to the major credit bureaus. If you’re late or miss a payment, the ding to your credit score is just like on a conventional credit card. 

How can a balance transfer help my credit score?

Balance transfers can be a smart, practical way to boost your credit score while also paying off high-interest credit cards.

Once you’re approved, your balance transfer’s new line of credit will increase your total available credit, which can lower your utilization ratio. Credit bureaus love that, as long as you’re using below 30% of your available credit across all your cards and lines of credit.

When you use a balance transfer to pay off credit cards, you’ll also lower your potential for missed or late payments. Consolidated to a single payment every month, you’re less likely to flub and incur a charge or penalty, as well as the damage to your score. 

Regular on-time payments on your balance transfer is also beloved by credit reporting agencies. Just like on conventional credit cards, when you make payments to your balance transfer on time, it builds your positive payment history, which can help you build a healthy credit score. 

What are the different kinds of balance transfers?

Not all balance transfers are built alike, with different applications, approvals, APRs, fees, penalties and credit limits. Balance transfers also always vary based on your own personal credit history. 

Some balance transfers require origination fees when your application is accepted. This is typically a flat fee and usually described as covering the lender’s account set-up costs. 

Other balance transfers charge a transfer fee whenever you move a balance from a credit card. Transfer fees typically range from 2% to 5% of the amount you transfer, which can be significant.

But some new balance transfers don’t charge origination or transfer fees. This can deliver significant savings, especially at a time when you’re trying to cut down on credit card costs.

APRs on balance transfers can vary widely. Most require a hard credit inquiry to assign an APR, to learn your creditworthiness. But some new lenders don’t require a credit check to apply and offer an APR.

Most balance transfers offer steep discounts on APRs during an introductory or promotional period. These are often zero- or low-interest APRs that offered for a limited time, after which your rate will go up to the rate offered you when you were approved. 

With a low rate offered for a limited time and a significant rate increase imposed after it, the best way to take advantage of a balance transfer’s introductory low interest rate is to pay off as much as your transferred balance as possible within the introductory period. 

However, some new lenders offer a low interest rate for as long as you’d like, extending the benefit of a balance transfer for a longer period. You can transfer balances now and in the future and always enjoy the same low rate. 

The credit limits on balance transfers also vary widely, because they’re also determined by your credit score. The healthier your score, the higher your limit. Although again, some new lenders regularly increase your credit limit if you consistently make on-time payments.

Not everyone qualifies for a balance transfer. Many require a credit score of at least 650, although again, some new lenders accept lower credit scores. 

Finally, not every balance transfer is offered as a credit card you can use for purchases or transactions. Some balance transfers are lines of credit designed only pay off high-interest cards, and to be clear, they can have the same impact on your credit score. 

Do balance transfers show up on credit reports?

A balance transfer shows up on your credit report just like a conventional credit card or loan. How responsibly use it, including on-time payments, will impact your credit score, just like any card or loan. 

A balance transfer also adds to your overall available credit, which impacts your utilization ratio. With the additional credit from the balance transfer, you’ll ideally keep you use only 30% or less of all your available credit. 

On your credit report, a balance transfer also counts toward the length of your open credit. The average length of time you’ve kept credit accounts open accounts for 15% of your score, and the new credit with a balance transfer can skew that number. 

Some people use balance transfers to pay off high-interest credit cards – and then immediately close those cards. This can also impact your average length of credit and impact your credit score negatively.

What are the advantages of a balance transfer?

Balance transfers can be a smart way to pay off high-interest credit cards with a lower-interest line of credit. You can save a significant amount of money on interest charges and potentially pay off your debt faster. If you transfer balances from multiple cards, you’ll also enjoy a single payment each month, instead of juggling payment amounts and due dates for different cards. 

How should I manage my balance transfer credit card?

When you get a balance transfer, treat it exactly as you would want to treat your credit cards. Pay as much as you can afford to pay each month and always make your payments by the due dates. 

Recommended Readings:

When to do a balance transfer

Step-by-step guide for a successful balance transfer