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Are you considering transferring your high-interest credit card debt to a card with a lower interest rate (20%E2%80%94%) or, better yet, a $200% interest period (20%E2%80%94%) by completing a balance transfer? This move can save you hundreds of dollars and make it easier for you to pay off what you owe.
While balance transfers won’t directly lower your credit score, applying for a new credit card may have both positive and negative effects on it.
In the long run, a balance transfer can be a very wise decision when used as the cornerstone of a debt-reduction plan. Heres what you need to know about how a balance transfer could affect your credit score.
The short answer is no, a balance transfer won’t directly hurt your credit score However, there are a few things to keep in mind that could indirectly affect your score
Here’s the breakdown:
Positive Impacts:
- Lowering your credit utilization ratio: This is the percentage of your available credit that you’re using. A lower ratio is better for your credit score. By transferring your balance to a card with a lower credit limit, you can reduce your utilization ratio and potentially improve your score.
- Paying down debt faster: Balance transfers often come with a 0% APR introductory period, which can save you money on interest. This allows you to pay down your debt faster, which can also improve your credit score.
- Closing high-interest accounts: If you close high-interest credit card accounts after transferring your balances, you can further improve your credit utilization ratio and reduce the amount of interest you pay.
Negative Impacts:
- Opening a new credit card: Applying for a new credit card will result in a hard inquiry on your credit report. Hard inquiries can lower your credit score by a few points, especially if you have a limited credit history.
- Increasing your total credit utilization: Even if you transfer your balance to a card with a lower credit limit, your total credit utilization will increase if you use the new card to make additional purchases. This can also negatively impact your credit score.
- Missing payments: If you miss payments on your new balance transfer card, it will damage your credit score.
Here are some additional things to keep in mind:
- The impact of a balance transfer on your credit score will vary depending on your individual circumstances.
- It’s important to weigh the potential benefits of a balance transfer against the potential risks before making a decision.
- If you’re considering a balance transfer, it’s important to shop around for the best deal.
- Make sure to read the terms and conditions of the balance transfer offer carefully before you sign up.
Here are some resources that you may find helpful:
- NerdWallet: Will a Balance Transfer Hurt My Credit Score?
- Chase Bank: How Does a Balance Transfer Affect Your Credit Score?
Frequently Asked Questions
Q: Will a balance transfer hurt my credit score if I have bad credit?
A: It’s possible that a balance transfer could hurt your credit score if you have bad credit. This is because you’re more likely to be approved for a card with a higher interest rate, which will cost you more money in the long run. Additionally, if you miss payments on your new card, it will further damage your credit score.
Q: How long does it take for a balance transfer to affect my credit score?
A: The impact of a balance transfer on your credit score will typically show up within 30 days of the transfer. However, it may take up to 90 days for the full impact to be reflected in your credit report.
Q: Can I do multiple balance transfers?
A: Yes, you can do multiple balance transfers. However, it’s important to keep in mind that each balance transfer will result in a hard inquiry on your credit report, which can lower your credit score. Additionally, you’ll need to make sure that you can afford the payments on all of your cards.
Overall, a balance transfer can be a helpful tool for paying down debt and improving your credit score. However, it’s important to use it responsibly and to be aware of the potential risks involved. If you’re considering a balance transfer, be sure to do your research and choose the best option for your individual circumstances.
How a balance transfer could hurt your credit score
A hard inquiry into your credit report will occur if you apply for a new credit card with the intention of transferring your balance. A hard inquiry can appear on your credit report for up to two years and initially lower your score by a few points.
Opening a new card also affects the length of credit history. A new card can reduce the average age of your credit, which can knock points off your score. If you have few credit cards, it will have a bigger impact than if you have many.
In the long run, using a balance transfer to pay off debt and use credit wisely moving forward should lessen or even eliminate the short-term negative effects.
on Bank of Americas website, or call (800) 322-7707 Wells Fargo Reflect® Card
on Wells Fargos website
on US Banks website
APR: 200% Introductory APR for 2018 billing cycles for purchases, as well as any balance transfers made within the first 20 days of the cycle After the Intro APR offer ends, a Variable APR that’s currently 16. 24% – 26. 24% will apply.
Balance transfer fee: 3% for 60 days from account opening, then 4%.
APR: 200% of the initial annual percentage rate for the first 2021 months after the account is opened for purchases and qualifying balance transfers, and then the ongoing APR for 2018. 24%, 24. 74%, or 29. 99% Variable APR.
Balance transfer fee: 5% of the amount transferred ($5 minimum).
APR: 200 percent intro APR on purchases for the first six months of the year and 200 percent intro APR on balance transfers for the first eight months of the year, followed by the ongoing APR of 2017. 24%-28. 24% Variable APR.
Balance transfer fee: 3% intro balance transfer fee; up to 5% fee on future balance transfers (see terms).
APR: 200 percent of the initial annual percentage rate (APR) for 2018 billing cycles on purchases and balance transfers, followed by the ongoing APR for 2018. 74%-29. 74% Variable APR .
Balance transfer fee: 3% of balance transfers made within 2060 days are subject to an introduction fee; after that, 5% of transfers are subject to a minimum fee of $5. *.
» MORE OPTIONS: Best balance transfer credit cards right now
How a balance transfer can help your credit score
Doing a straightforward balance transfer won’t have much, if any, of an impact on your credit score. Reducing your debt through the transfer, both in terms of money and as a percentage of your available credit, is essential to raising your credit score. Eliminating debt sends the kind of signals that result in better credit scores.
Every dollar you save on interest means you have more money to use toward debt repayment. That allows you to shrink your debt faster — and shrinking your debt is good for your credit. The total amount of debt you owe determines 30% of your FICO credit score, and the dollar amount of that debt is one of the factors there. Another factor is your credit utilization ratio, or the percentage of your available credit that youre using.
Generally speaking, it’s a good idea to maintain your credit utilization ratio below 30% at all times, with an E2%80%94% variance across all of your cards as well as per card. Adding a new card with a new line of credit reduces your overall credit utilization.
Let’s say a consumer has two credit cards:
- Card A: $5,000 limit with a $2,000 balance
- Card B: $3,000 limit with a $1,000 balance
This customer has an overall utilization ratio of 37 and a utilization ratio of a percent (2040%) on Card A and a percentage (2033%) on Card B. 5% ($3,000 divided by $8,000). On each card as well as overall, this consumer’s debt is over the 30% ceiling.
Let’s say this person transfers all of their other debt to Card C, a balance transfer card with a $6,000 limit. This person’s utilization is currently 20% on Card A, 20% on Card B, 20%50% on Card C, and 20%21 percent overall.
On the whole, this will look better on the consumers credit report. Of course, the interest savings from the transfer have also allowed this person to pay off that $3,000 debt faster.
