Do Balance Transfers Hurt Your Credit or Affect Your Credit Score?

Let’s Learn About: How Balance Transfers Affect Your Credit Score

  • Balance transfers affect several factors that contribute to your credit score
  • Balance transfers can help your credit if you use them to pay down balances and reduce the percentage of available credit you’re using
  • Balance transfers can hurt your credit if you open too many new accounts at once or close older accounts after opening a new one

A balance transfer — or shifting the debt on one credit card to another — impacts everyone’s credit score differently. How and whether a balance transfer affects your credit score depends on the specifics of the transfer, your credit history, and other factors. To better understand the potential impact of a balance transfer on your credit though, it helps to learn about the factors that make up a credit score.

How Your Credit Score Is Calculated

A credit score provides a lender a quick way to gauge your creditworthiness by measuring the likelihood you will pay your loans back and whether you’ll do so on time. Your FICO® Credit Score (one of several credit scores available) is based on five main categories, each contributing a different percentage to the score:

  • Payment history — This factor refers to a borrower making on-time payments to debts. Missing payments can negatively affect a credit score. Payment history has the largest impact, usually about 35 percent of the score. If you do a balance transfer, it will be important to make on-time payments and begin steadily paying down any debt you might have.
  • Amount Owed — Credit usage is approximately 30 percent of a credit score. A credit utilization rate, also known as your balance-to-limit ratio, compares your total balances to your total credit limits. Generally, the higher your credit utilization, the lower your credit score will be.
  • Length of Credit History — Your credit history typically accounts for 15 percent of a credit score. Generally, a longer credit history will increase a score, all else being equal.
  • New Credit — New credit inquiries generally make up 10 percent of a credit score. Each time you apply for a new credit card, a “hard inquiry” is placed on your credit report. Applying for a new credit card to take advantage of a balance transfer offer can negatively affect your credit score, and can indicate a higher credit risk to lenders.

It’s important to remember that any change in your credit usage or credit payment activity may affect your score. Credit scores move up and down to reflect the latest information in your credit file. Checking your credit score is a good way to keep up with changes in your credit report and monitor the impact of positive or negative events.

How Do Balance Transfers Affect Your Credit Score?

How a balance transfer affects your credit score depends on four factors:

  • Hard inquiry — A new card means a hard inquiry into your credit, which could impact your score. Too many hard inquiries in a short period of time can negatively impact your credit score.
  • Credit utilization — Opening a new credit card to take advantage of a balance transfer increases your total available credit. If you don’t increase your spending, increasing your credit results in a lower credit utilization ratio, which is the percentage of total credit in use. A general rule of thumb for how to build good credit is to keep your credit utilization ratio as low as possible.
  • Age of your credit accounts — If you open a new credit card for a balance transfer and then close your old credit card account, you’re decreasing the average age of your credit history.
  • Payments on the new card — Taking a balance transfer on your new credit card and diligently paying down your debt may save you money on interest. However, you’ll still need to pay off additional purchases made with your new credit card to avoid paying interest on those charges.

How Balance Transfers Help Your Credit

When you’re considering balance transfers to refinance your debts, it’s important to figure out what kind of interest rate and term durations will help you manage your debt most effectively. Since the act of transferring balances won’t be the catalyst that heals or harms your credit itself, taking advantage of a lower APR can help you decrease your credit utilization ratio and help you make payments on time. Additionally, if you’re opening a new credit card to initiate a balance transfer, there may be newer, more exciting rewards on your horizon.

How Balance Transfers Hurt Your Credit

On top of hard inquiries, opening new lines of credit for a balance transfer may mean that you’re lowering the average age of the accounts tracked to calculate your credit history. If you also cancel older cards, such as your single decades-old credit card, credit bureaus may look unfavorably at this departure, as it will lower the average age of your accounts further. Lastly, if you use your new balance transfer credit card to run up additional debt, outstanding debt balances and late or missed payments will fight back any hard work you’re doing to rebuild your credit.

When considering a balance transfer it’s important to stay informed and read the fine print carefully. Understand all the costs involved and think about the cost of the balance transfer versus the long-term cost of carrying high interest debt.

Legal Disclaimer: This site is for educational purposes and is not a substitute for professional advice. The material on this site is not intended to provide legal, investment, or financial advice and does not indicate the availability of any Discover product or service. It does not guarantee that Discover offers or endorses a product or service. For specific advice about your unique circumstances, you may wish to consult a qualified professional.

Discover and Fair Isaac are not credit repair organizations as defined under federal or state law, including the Credit Repair Organizations Act. Discover and Fair Isaac do not provide "credit repair" services or advice or assistance regarding "rebuilding" or "improving" your credit record, credit history or credit rating. FICO is a registered trademark of Fair Isaac Corporation in the United States and other countries.