Do Balance Transfers Affect Your Credit Score?

If you have credit card debt, a balance transfer is among the most popular offers that can be used to pay off the debt. Balance transfers refer to the act of transferring the balance of an existing credit card to a new credit card, preferably one that comes with a 0 introductory APR. This intro period generally extends for 12-21 months. This means that you can take advantage of a 0 rate to adjust your loan faster without incurring more interest charges.

However, before you apply for a balance transfer, you might be thinking will this affect my credit? To answer the short question of whether balance transfers impact your credit score, the answer is yes, but not necessarily in a negative manner. Below is a detailed view of how balance transfers can impact your score together with measures you can take to reduce the impact.

Hard Inquiries

The credit card provider will draw your credit report when you apply for a new credit card to handle the debt transfer. Every time you apply for a loan, hard questions follow. This helps the lenders evaluate your present credit record. Many challenging questions in a short time might cause the rating agency to see you as more at risk and hence reduce your score by a few points.

Most credit score systems, it is crucial to understand, do not respond much to a few questions. For example, FICO lets consumers rate checks for a mortgage, a car loan, or a student loan within 45 days without running more hits on the score. It would be more negative, however, if one opened many credit cards a few months ago. If at all possible, try to avoid having more than two or three harsh inquiries in any one 12-month period. The disadvantage here is that the debt transfer lowers your credit score; this should only be a worry if you are applying for many balance transfer cards.

Credit Utilization

Apart from new inquiries, credit utilization is a factor that can be affected by a balance transfer. This ratio measures the extent of utilization of all your revolving credit facilities such as credit cards, lines of credit, etc against total available credit facilities. Some best practice guidelines suggest keeping your utilization below 30 percent, and even lower percentages are preferred.

For example, if you have a total credit limit of $10000 and a credit card balance of $3000, then your utilization will be 30%. It will be useful to reduce this ratio, but simply transferring balances from the first card that has been maxed out to the new card will not help in doing so. If possible, try to get more overall credit limits; before doing balance transfers, try to make one or several requests for raising the limits on existing credit cards. This can reduce the score loss from high usage but may include another credit check upon renewal.

What Does Help Your Score?

Reducing the amount of debt This is because even if the balance utilization remains high after the transfer, paying down your newly transferred balance allows you to pay off the debt more quickly once the 0% rate elapses. Subduing credit card balances over time will help to reduce the utilization thus increasing the utilization to get the benefits in the credit score in the future.

• Opening Another Line of Credit - Sometimes, raising overall credit limits can help if you transfer balances to the new account, but do not close old accounts. All you need to know is that there will be a hard inquiry made on your credit report.
• Length of Credit History - Similarly, it is beneficial to retain the old credit card with zero balance after transferring the balance with the help of a balance transfer. Closing old accounts or moving all the limits to the new card reduces the strength of this factor.

Timely payment of any transferred balances and other credit accounts also helps improve credit scores. This is usually the most influential component in the credit scores.

Things to Avoid

• Maxing Out New Card - Though, there is a temptation to use the credit offered for balance transfer for other purchases that can increase the utilization ratio again and cancel out the positive impact on the score. Use judiciously.
• Closing Old Cards - Contrary to expectations, keeping credit card accounts open after a balance transfer can sometimes reduce credit scores.
• Applying for Multiple Cards- Transferring balances to only one new credit card reduces the number of hard inquiries and score effects. Using other cards after that leads to more inquiry damage.
• Late Payments - Lastly, failure to make payments on any credit accounts after a balance transfer erases any gained score. Continue to be consistent in making at least the minimum payment each month.

To sum up, a valuable balance transfer used only for one new card, constantly refusing other applications enables paying off the debt quicker with minimum negative effects on the credit score. Do not close accounts, maintain a low credit utilization ratio on all the cards, and make timely payments If one wants the best results for balance transfers. Check them using a free site monthly, however, the changes in your scores are gradual and will be most apparent once the debts are fully paid.

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