Do balance transfers hurt your credit scores?

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In a Nutshell

A balance transfer may lead to your scores dipping in the short term. That’s because you’ll decrease your average account age and increase the credit utilization on a single card. But when you use credit responsibly over time, your credit should rise again.

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If you’re trying to tame credit card debt, the burden of juggling multiple card payments and watching your balances swell with interest charges won’t help.

A balance transfer card can simplify your debt while removing new interest from the equation, but it could impact your credit scores in good and not-so-good ways.

It also won’t fix any financial habits that led to the debt in the first place.

“If someone is just using the card to stay afloat — as a financial life preserver — there’s probably something a little more going on in terms of personal finance,” says Freddie Huynh, vice president of credit risk analytics at Freedom Financial Asset Management.

“If used properly in the right situation, [balance transfers] are tools that can help a consumer in the long term.”

Let’s look at how balance transfers and your credit scores are connected. We’ll also go over how to plan your transfer so you can avoid hurting your current credit scores.

How to do a balance transfer in 6 steps

What’s a balance transfer?

A balance transfer allows you to move an existing balance from one or more credit cards to a single card — usually one with a low or 0 percent introductory interest rate.

Your level of debt won’t change, but the main benefit is this: During a 0 percent interest introductory period, your debt won’t grow with interest charges while you work to get it under control.

The best balance transfer credit cards typically offer a 0 percent intro annual percentage rate (APR) for a specified period, usually 12 to 21 months.

Let’s look at an example of how this works. Say you have the following cards in your wallet:

Card 1 Card 2 Card 3 Card 4

(your new balance transfer card)

Current balance $3,000 $1,500 $1,000 $0
Credit limit $5,000 $5,000 $3,000 $10,000
APR 24 percent 18 percent 20 percent 0 percent intro for 12 months, then 15 percent
Age of account 48 months 24 months 36 months 0 months

You’re motivated, so you want to pay off the balances on Cards 1, 2 and 3 in the next 12 months. Transferring those balances onto Card 4, which has a 0 percent intro APR for the first 12 months, could save you up to $665 in interest.

Just don’t forget to factor in the balance transfer fee (if there is one) when calculating your net savings. Balance transfer fees are typically 3 percent of the amount you wish to transfer.

Finding the right balance transfer credit card

There’s no one-size-fits-all balance transfer card. That said, certain cards tend to stand out as good options for a variety of reasons.

Chase Slate® is popular because it has a 0% intro APR on balance transfers for the first 15 months (after that, it converts to a regular variable APR of 16.49% - 25.24%) and a $0 fee if you transfer the balance within 60 days of account opening.

If you transfer the balance after 60 days of account opening, you’ll be charged a balance transfer fee of 5% or $5 minimum.

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Use these questions to help you decide which type of card you may need:

  • What kind of credit do you need to get the card? Credit Karma members can check their Approval Odds to get an idea of how likely they are to be approved for the card. Credit Karma looks at how your credit profile compares to other Credit Karma members who were approved for the card. Heads up: Approval Odds are only guidelines, and they don’t guarantee approval. Ultimately, the credit card company has the final say.
  • Does the card allow you to transfer debt from another account or loan issued by the same bank? Chase, for example, prohibits this with Chase Slate®, and it’s a common restriction among issuers.
  • Will the card limit how much you can transfer?
  • What’s the length of the introductory APR?
  • Is there a time frame in which you’ll need to make the transfer to benefit from the introductory offer?
  • Is there a balance transfer fee?

What factors make up my credit scores, anyway?

You’ve found the card that’s right for you. Now let’s go over how your credit is scored before we get into how it will be impacted.

Your credit scores are determined by a variety of factors, and a balance transfer may affect some of those factors. Here are the score components most likely to feel the effects of a balance transfer:

  • Credit utilization, or how much of your credit you’re using compared to how much you have available. This is usually expressed as a percentage and most experts recommend keeping your overall credit utilization below 30 percent.
  • Length of credit history, or how long you’ve had credit lines open.
  • New credit, when you open new accounts.

Note that there are several different credit scoring models out there, and each model may weigh credit factors differently.

If you want to get an idea of what your VantageScore 3.0 credit scores from TransUnion and Equifax look like before applying for a balance transfer card, you can do so for free with Credit Karma.

Balance transfers and your credit scores

As you go through the steps involved in completing a balance transfer, your credit may be impacted in different ways.

When you apply for the new credit card, the issuer will create a hard inquiry on your reports. This may lower your credit scores by a few points, and the inquiry may stay on your reports for about two years.

Consider the example we used above. The average account age of Card 1, Card 2 and Card 3 is 36 months. But once you open Card 4, the average age of your accounts falls from 36 months to 24 months.

Huynh says this drop in your average account age could modestly impact your scores, or there may be no impact at all.

A balance transfer isn’t necessarily all bad news for your credit. While your credit history takes a dip, your credit utilization may actually improve.

Let’s go back to that example again. Before getting Card 4, you have a total credit limit (across the three cards) of $13,000, and you’re using about 42 percent of your total credit limit.

With the balance transfer and the addition of a new card with a $10,000 credit limit, your total credit limit climbs to $23,000 and your credit utilization falls to about 24 percent. Such a dramatic decrease in your overall credit utilization may result in a substantial credit improvement, Huynh says.

There’s one big-time caveat to keep in mind, though. Huynh warns that certain credit score models can either look at your overall credit utilization or the utilization on individual credit cards.

If the score focuses on the utilization of each card, your credit may be negatively impacted because your debt is now entirely on one card.

What to do after the balance transfer

So, you’ve completed a balance transfer. That’s awesome! But before patting yourself on the back, there’s some work left to do.

As you pay down your debt, consider keeping all your cards open, which will show your positive payment history, help boost the average age of your accounts and help you maintain a low overall credit utilization (all potentially great for your credit).

Paying your credit card bill on time every month may also boost your credit, as payment history accounts for a significant impact on your scores. And when you finally pay off that debt, your amounts owed will fall, which may also positively impact your credit.

Bottom line

If you decide to complete a balance transfer, understand that your scores may dip in the short term. That’s because you’ll decrease your average account age and increase the credit utilization on a single card.

But the great thing about credit scores is their resilience: When you use credit responsibly over time — making on-time payments and eventually paying off debt — your credit should rise again.