Can a Balance Transfer Hurt Your Credit?

A credit card balance transfer usually lowers your credit score in the short term. Opening a new card can impact your score because it’s a new inquiry on your credit, and because a new account will affect the length of your credit history. 

A balance transfer can actually boost your credit score in the long run if done right, though. That means using this tool to pay down high-interest credit card debt and lower the total amount you owe. But if you make the transfer and then rack up new debt on your old card, a balance transfer can drag down your score and leave you in worse financial shape. Here’s what you need to know about doing this right.

How a balance transfer can hurt your credit score

If you don’t work toward paying down your debt, a credit card balance transfer can negatively impact your credit score. Here are a few ways a balance transfer can hurt your credit score.

Hard inquiries

When you apply for a new balance transfer credit card, the lender does a credit check, known as a hard inquiry or hard pull, which typically lowers your credit score by less than five points. A hard inquiry can stay on your credit reports for up to two years but should only affect your score for one year. 

If you can get a balance transfer offer on a card you already have, you’ll escape the credit ding caused by a hard inquiry. 

Higher credit utilization ratio

A balance transfer can affect your credit utilization ratio, which is the amount of available credit you’re using. By opening up a new card, you’ll be using less of your total available credit, unless you keep building up credit card debt after the balance transfer.

What to know

The amounts you owe have a big effect on your credit score, making up 30% of your FICO® Score. The more available credit you’re using (higher utilization), the worse for your score.

You might think that closing the old card could help you avoid the temptation to spend. Unfortunately, that could backfire by lowering your total available credit and thus negatively affecting your credit utilization ratio.

Also keep in mind that moving a balance onto an existing card with a balance transfer offer can negatively affect your utilization on that specific card, especially if it causes you to max it out. But as you pay down that balance, your score should bounce back even higher than before if you don’t add new debt to your cards.

Account age

Opening a new balance transfer card also can hurt your score a bit. The length of your credit history counts for 15% of your FICO Score, and that factors in how long specific accounts have been open and also the length of your credit history including the average age of your accounts, the age of your oldest account and the age of your newest account. 

How a balance transfer can help your credit score

If you use a balance transfer as a tool to pay down debt faster and save money, it can positively affect your credit score in a few different ways.

Lower credit utilization ratio

The main way a balance transfer can help improve your credit score is by reducing your overall credit card debt and thus your utilization. Keep in mind that only accounts with revolving credit lines — as opposed to auto, home or personal loans — are factored in your credit utilization ratio. 

When you open a new balance transfer credit card, you’re adding a new line of credit and thereby increasing your total credit limit and thus reducing your overall credit utilization. You also immediately reduce the utilization ratio on the card from which you transfer the balance. 

Your new balance transfer card will likely have a high balance, but as you pay that down without adding any new debt, your utilization ratio on that card will lower, positively affecting your credit score. 

Paying down debt

Amounts owed, or credit utilization, is the second biggest factor in your FICO Score. High-interest credit card debt can be extremely difficult to pay down, especially in times when the average credit card interest rate is high. Even if you have a lower interest rate, a sizable chunk of your monthly payment will still get eaten up by interest. That’s why a balance transfer card can be such a valuable tool for paying down debt.

If you can get a 0% intro APR card, ideally with no balance transfer fee, this can give you 12 to 21 months to pay down debt without worrying about interest. If you can significantly lower your debt load, that will help your credit score. With less debt, it could also be easier to make on-time payments, which would also help your credit score. 

What to do before a balance transfer

1. Check your credit score. Most balance transfer cards are aimed at consumers with good to exceptional credit. Check your score before applying for a balance transfer card to avoid suffering a hard inquiry only to be rejected.
2. Figure out if a balance transfer fee is worth paying. Many balance transfer cards charge a fee of 3% to 5%. For example, a 3% balance transfer fee when transferring $4,000 would cost $120. But you might still save money overall. For example, if you paid off a $4,000 balance over 21 months on a credit card with a 20% APR, you’d end up paying about $773 in interest on top of the principal. Even after a $120 balance transfer fee, you could save in the ballpark of $653.
3. Calculate how long you’ll need to pay off debt. Balance transfer cards often come with 0% intro APR periods anywhere from 12 to 21 months long. Figure out what you can pay each month and how long it will take you to wipe out the entire balance, and this will help you choose a card.

What to do after a balance transfer

1. Keep paying your old card until the transfer is complete. If you don’t stay current with payments, you could get dinged for a late payment. Your balance transfer might process as quickly as a few days, or it could take weeks — or longer. 
2. Budget a specific amount to pay toward your balance every month. It’s important to commit to paying off your debt before the 0% intro APR ends, otherwise, you’ll face interest charges at the regular APR on the remaining balance.
3. Avoid building up debt with new purchases. Doing a balance transfer can help you get out of debt and improve your credit score, but only if you don’t accrue additional debt. Continually racking up debt on a credit card, especially if you only pay the minimum payment, can be very costly.

Is a balance transfer a good idea?

Applying for a balance transfer isn’t always the right move. For example, if you need to rebuild credit, you probably won’t get approved for a balance transfer card. Or, if you keep opening up new credit cards and shifting debt around, lenders will catch on. But if you meet the following criteria, a balance transfer to a 0% intro APR credit card is probably right for you:

• You’re carrying high-interest credit card debt and would like to pay it down while minimizing the amount you pay in interest.
• You have good to exceptional credit and haven’t recently applied for too many new credit cards.
• You’ve budgeted a monthly payment that will pay off your balance before the 0% intro APR ends.

Keep in mind that different card issuers have different balance transfer limits, and the credit limit on your new card may not be high enough to transfer your old balance. If your balance transfer credit limit is too low, you have options, such as asking for a higher limit or applying for a second balance transfer card.

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An alternative to a balance transfer

It can be very difficult to find a balance transfer card for bad credit. If you aren’t sure your credit score is good enough to qualify for a balance transfer card, or if you simply don’t want to open up another credit card, applying for a personal loan instead might be a better option.

If you use a personal loan to pay off credit card debt, you’ll have the stability of having a set monthly payment amount and predetermined payoff date. While you will pay interest on a personal loan, you might still end up saving money compared with the interest you’d be charged for carrying a balance on your credit card.

To comparison shop personal loans, use LendingTree’s personal loan tool and click “get customized rates.”