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How Does a Balance Transfer Affect Your Credit Score?

July 9, 2021
A couple paying a bill on their phone.

If your credit card debt is overwhelming, a balance transfer can be a great way to help lighten the load. But before committing to a balance transfer, you might be wondering what other effects it has. For example, could a balance transfer help your credit score? Or is there a chance your credit score could go down? Let’s clear the air on how balance transfers affect credit scores.

Affected Credit Score Factors

When calculating your credit score, five main factors are considered: payment history, credit mix, credit utilization, credit history length, and recency of new accounts or inquiries. The latter three factors could all be impacted by doing a balance transfer.

  • Recency of new accounts or inquiries. When submitting a balance transfer request through a credit card you have already opened, there is no hard inquiry on your credit. However, if you apply for a new credit card with plans to transfer your balance, a hard inquiry will be made. Hard inquiries represent potential new debt, which can be a warning sign to lenders. That’s why your credit score might decrease temporarily after inquiring or opening a new credit card.
  • Credit history length. One of the factors that goes into your credit score is the “age” of your credit history—how long you have been using credit. Several scoring models consider your oldest and newest accounts, as well as the average age of all accounts.  If you open a new card, keep in mind that this could shorten the average age of your credit accounts, potentially lowering your credit score.
  • Credit utilization. Your credit utilization ratio is represented by several factors. The amount of debt you carry, the ratio of credit card balances to your limit, and the relation of your loan balances to the original loan amount. If you open a new card to make a balance transfer while maintaining your aged accounts, then your total available credit will increase. Regardless of your combined limit, you should keep your credit usage below 30%. Consistent payments towards your balance can help lower you credit utilization, potentially increasing your credit score. Keep in mind, if you close out your previous account your total limit may change, impacting your credit utilization.

Tips to Protect and Improve Your Credit Score

Transferring your balance from a high-rate credit card to one with a lower rate can help you save on interest as you pay off your balance. You may be able to pay more towards the principal on your card and reach the happy medium of credit card usage. In addition to making on-time payments, consider these steps you can take to help protect and improve your credit score:

  • Weigh the effects of closing old credit cards. When you close a credit account, you lose access to the available credit which could impact your credit utilization ratio. Closing old accounts can also decrease the average age of your credit history, possibly lowering your credit score. However, if you’re paying high annual fees on accounts you don’t plan to use, it might be more beneficial to close them.
  • Be mindful of your spending. The credit card you transfer your balance to may have an introductory or promotional rate that’s low. However, this rate usually only applies to the transferred amount. New purchases will likely accumulate interest based on the card’s standard rate. Increasing your balance with new purchases will increase your credit utilization ratio which could have an impact on your credit score. Plus, card issuers may apply minimum payments toward the balance with the smaller interest rate.*  

*Always carefully review the terms of conditions of promotional credit card offers.

  • Establish autopay. Timely payments are essential if you want to have a good credit score and avoid late fees. Setting up autopay can help ensure your payment is made on time each billing cycle. If possible, pay more than the minimum. This will help you avoid accumulating interest.

Zero-Fee Balance Transfers

Switch away from the high rate on your current credit card. DCU Visa® credit cards offer lower rates than most bank or store cards. Plus, you’ll pay no fees to transfer your balance. Members of DCU may also be eligible for free monthly updates on their FICO score.* Already have a DCU Visa® credit card? Click here to log in and access the Balance Transfer tool in Online Banking.

*The FICO® Score provided under the offer described here uses a proprietary credit model designed by FICO®. There are numerous other credit scores and models in the marketplace, including different FICO® Scores. Please keep in mind third parties may use a different credit score when evaluating your creditworthiness. Also, third parties will take into consideration items other than your credit score or information found in your credit file, such as your income.

Please note, membership is required to open a DCU Visa® Platinum credit card.

This article is for informational purposes only. It is not intended to serve as legal, financial, investment or tax advice or indicate that a specific DCU product or service is right for you. For specific advice about your unique circumstances, you may wish to consult a financial professional