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Do Balance Transfers Hurt Your Credit?

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Not everything that’s good for your finances is good for your credit, and vice versa. For example, using credit cards and loans helps build your credit scores, but can also get you into trouble with debt that ruins your credit score.

The same good side/bad side scenario applies to balance transfer credit card.

On the one hand, a balance transfer card allows you to pay off old debt with a new, lower-APR credit card. But to get there, you have to deal with transfer fees and the lower introductory interest rate has an expiration date that could be costly if you don’t pay off the debt in time.

Still, for many people, the long-term benefits to their wallet and their credit are greater than the negative side of balance transfer cards.

What Is a Balance Transfer?

If you’re struggling with credit card debt, a balance transfer is a debt-relief strategy that can help you reduce your expenses and pay off your debt faster.

With a balance transfer, you use a new credit card to pay off older, higher-interest credit cards and other debt. This is typically done by opening up a 0% introductory APR credit card. Compare 0% interest to the current average interest rate of 22.63% paid by people carrying a balance and you can see the immediate savings.

When you move your debt onto one of these cards, you’ll have a set period of time — usually 12-18 months – in which you don’t have to pay any interest on the balance. However, you must pay off the balance in that introductory period or the rate immediately shoots up from 0% to somewhere in the 20s.

“When you’re struggling to delete a large balance because too much of your payment is going toward interest, shifting it to a 0% APR transfer card can save you a tremendous amount of money,” Personal Financial Reporter, Erica Sandberg said. “When you pay the debt off before the regular rate goes into effect, the only cost is the balance transfer fee so your entire payment will drive down the principal.”

Using a balance transfer credit card can give you significant relief for short-term financial issues, but these cards also have complex rates and fee policies. A few important things to know in advance:

  • You typically have to pay a transfer fee of 3%-5% on the amount you transfer, so, for example, if you transfer a balance of $5,000, you’ll pay a few of $150-$250.
  • Your APR may be ultra-high when the 0% introductory period ends.
  • You’ll still must make minimum monthly payments during the introductory period.
  • You typically need credit scores of 720 or higher to qualify.
  • Unless the 0% offer applies to purchases, you’ll be charged regular interest on new purchases starting on the date of the purchase.
  • The 0% introductory period will end early if you make a late payment.
  • Some creditors don’t allow you to transfer loan debt onto their cards.

How Credit Scores Work

It’s impossible to say how much a balance transfer card will impact your credit scores, since your prior credit history and the details of the new account play a role in the outcome.

Each FICO score is calculated based on a mix of five factors, and balance transfers have an impact on all five. Here’s what happens, and how you can optimize your scores when you complete a balance transfer:

  • Payment history (35%): Making on-time payments on a new credit card can help improve your credit scores slowly, but a missed payment will cause them to drop quickly.
  • Credit utilization (30%): Opening a new credit card gives you more available credit, which can boost your scores. As you pay your balances down, you’ll see additional score growth. But if you close your old credit cards (which we don’t recommend), you’ll lose some of your available credit and your scores can drop.
  • Length of history (15%): Your average length of credit history will likely get shorter when you open a new account, which can cause you to lose some points. Closing old credit card accounts hurts you in this area too.
  • New credit (10%): Applications for new credit, also known as “hard inquiries,” can cost you a few points, but you’ll gain the points back over the course of a year.
  • Credit Mix (10%): If you don’t have a credit card already, adding one into your credit mix can give your scores a slight boost.

The Immediate Impact of Balance Transfers on Your Credit Score

Any time you make a change to your credit profile, you can expect it to take at least 30 days before you see a change in your scores. You’re likely to see a drop in your credit scores within a month or so of opening up a balance transfer credit card, especially if you apply for multiple credit cards before choosing the one you want. When you open the card, you could also see your scores drop because it shortens your average length of credit history.

On the other hand, you can gain points due to your reduced credit utilization. “If your [credit card] debt is close to the limit, the new account can raise your credit score because it expands your total borrowing ability,” Sandberg said.

Long-Term Effects of Balance Transfers

If you stay on top of your payments on the new card, you could see a big boost to your scores over time. Balance transfer credit cards help you pay debt faster, since more of your payment goes to the balance (and not to interest). As a result of the new available credit and the lower credit card balances, you can make a big improvement in your scores.

Tips to Minimize the Negative Impact of Balance Transfers

If you don’t go about the balance transfer process strategically, you could end up doing more harm to your credit scores than good. Here’s what you can do to ensure the best outcome:

  • Preapproval: Narrow your card applications by comparing multiple card preapproval offers before applying. The more cards you apply for, the lower your credit score.
  • Rate shopping: Reduce the impact of hard inquiries by making all of your applications for a balance transfer credit card within a 14-day window.
  • Leave old cards open: Once you pay off old credit cards, leave them open so the available credit and length of account history will continue to help your credit scores.
  • Have an aggressive plan: Don’t view the new card as an invitation to accrue more debt. Instead, have a plan in place to pay off the transferred balance before the 0% APR offer expires.
  • Request rate increases: Once you transfer your balances and start seeing your scores improve, make a habit of asking your old creditors for annual limit increases. Doing so will lower your credit utilization and improve your scores.

Alternatives to Balance Transfers

Balance transfers aren’t the best debt management strategy for everyone. You’ll want to consider another solution if your credit scores are too low to qualify for a 0% card, if you won’t be able to pay off your debt before the 0% APR period ends or if your main concern is loan debt.

Here are some options to consider:

How It worksProsCons
Balance transfer credit cardUse a new credit card with 0% APR to pay off old high-interest credit card debt.Temporary relief from interest allows you to reduce expenses and pay off debt faster.APR can be as high as 30% when introductory period ends, and you pay a balance transfer fee.
Personal loanBorrow a lump sum of cash from a bank, friend or family and pay it back monthly.Lower APR than most credit cards.Payments may be high since there’s a set payoff date.
Equity loanGet a loan equal to some or all of the equity in your home or car.Lower APR than credit cards and most loans.Risk losing your property if you fall behind on payments.
Direct Consolidation LoanUse a loan from the Department of Education to pay off federal student debt.Reduces APR and payments. Provides access to forgiveness programs.Your payment period may be extended, and you can lose loan-specific discounts.
Debt Management Program (DMP)Work with a nonprofit credit counseling agency to enroll in a new payment plan for your credit card debt.Consolidate credit card bills to lower interest rates and monthly payments.You may have to close all of your credit cards and pay a monthly fee.

Beyond the Balance Transfer

A balance transfer can be an excellent strategy for managing debt … at least in the short term. Balance transfer credit cards can help you reduce your monthly expenses and chip away at your debt faster. Plus, they help you build your credit scores over time. But if you can’t pay off the balance before the regular APR kicks in, you could find yourself once again struggling to eliminate your debt.

“Unfortunately, many consumers don’t clear their transferred debt within the intro period,” says Sandberg. “That’s a huge problem because eventually the real interest rate goes into effect, and when the balance is high, so too will be the costs.”

If your situation is unlikely to improve in the near future, even with the help of a balance transfer, don’t hesitate to get professional support instead. By talking to a certified credit counselor, you can find out if there’s a better strategy for debt consolidation and get one-on-one pointers for eliminating debt and getting your finances in order.

About The Author

Sarah Brady

Sarah Brady is a Personal Finance Writer and educator who's been helping people improve their financial wellness since 2013. Sarah writes for Experian, Investopedia and more, and she's been syndicated by Yahoo! News and MSN. She is a workshop facilitator and former consultant for the City of San Francisco's Affordable Home Buyer Programs, as well as a former Certified Housing & Credit Counselor (HUD, NFCC).

Sources:

  1. N.A. (2023, October) The Consumer Credit Card Market. Retrieved from https://files.consumerfinance.gov/f/documents/cfpb_consumer-credit-card-market-report_2023.pdf
  2. N.A. (2024, February 16) Credit card data: Small issuers offer lower rates. Retrieved from https://www.consumerfinance.gov/data-research/research-reports/credit-card-data-small-issuers-offer-lower-rates/
  3. N.A. (ND) Consolidating Student Loans. Retrieved from https://studentaid.gov/manage-loans/consolidation
  4. Pincus, P., Baron, J., McNutt, E. (2024, April 30) What is the average credit card APR? Retrieved from https://www.cnn.com/cnn-underscored/money/average-credit-card-apr