Does a Balance Transfer Hurt Your Credit Score?


Balance transfer Q&A: “Does a balance transfer hurt your credit score?”

A balance transfer may adversely affect your credit score, but its impact can vary greatly. And it depends if we’re talking about short-term or long-term.

When you choose to execute a credit card balance transfer, you’re essentially moving credit card debt from one credit card to another.

Balance Transfers = New Credit = Lower Credit Score

  • Short term your credit scores may take a hit with a balance transfer
  • Due to the opening of a new credit card
  • But if you’re just moving debt from one card to an existing card your scores may not be affected
  • Long term your credit scores should rise as the debt is paid down/off

In many cases, a balance transfer requires you to open a new credit card account, which will probably drag your credit score lower, at least in the short term.

Anytime you apply for new credit you’re telling creditors you need something. And that something, whether it’s a reduced rate or just “buying a little time,” shows them you’re a little more risky than you were before you asked for help.

This happens because you’re applying for new credit, which is a factor used by FICO, the creator of the FICO score.

Put simply, consumers who apply for new credit are seen as higher default risks, and will subsequently see lower credit scores as a result.

However, you can move a balance from one credit card to another existing credit card, which should lessen any credit score impact.

How Much Will My Credit Score Go Down After a Balance Transfer?

  • Any negative impact will likely be quite limited
  • We’re talking 5-10 points in many cases when opening a new credit card
  • But it will vary based on your current scores and credit history
  • Either way paying down expensive debt is often more important than any temporary credit score dings

In either situation, it’s impossible to say how many points your credit score will fall, or for how long, because it’s contingent on a number of other factors related to your unique credit history.

As a rule of thumb, the deeper and more positive your credit history, the less negative impact a balance transfer will have. And vice versa.

Regardless, a balance transfer isn’t a negative event; it’s simply a request for new credit, which is known as a credit inquiry.

Credit inquiries typically lower credit scores temporarily, but only by a marginal amount. FICO says most credit inquiries only lower credit scores by 5-10 points or so.

If your credit score is already stellar, a balance transfer probably won’t have much of a meaningful effect, so don’t fret.

[What credit score is needed for a balance transfer?]

What About Credit Utilization?

  • Your available credit is one of the many credit score rating factors
  • If you use more of it your scores tend to move lower
  • Your scores may go down temporarily if you transfer a large amount to one card
  • But over time your credit scores should go up as you pay off debt and free up credit

Inquiries aside, your credit score can take a hit as a result of a balance transfer if your credit utilization, otherwise known as the percentage of credit you’re using, rises substantially.

Say you have two credit cards with balances of $1,000 with Citi and $3,500 with Chase that have credit limits of $5,000 and $10,000, respectively.

Now assume you apply for a new balance transfer credit card with Discover and move the combined balance, $4,500, to that new card.

Let’s pretend that new credit card only has a limit of $5,000. If you were to move the $4,500 and pay a 3% balance transfer fee, you’d wind up with very little available credit on the new card.

In fact, you’d be using $4,635 of the $5,000 limit, or nearly 93%. That could send your credit score down sharply, at least in the near-term.

However, as the balance is paid down your credit score should rise back up and once the balance is completely paid off your credit score should be much higher than where it was originally with the outstanding debt.

Is a Credit Report Required for a Balance Transfer?

  • In most cases a balance transfer will result in a hard inquiry
  • This is especially true for those opening new balance transfer credit cards
  • But you may be able to avoid it if transferring a balance to an existing card
  • Either way the impact should be muted, but you still need decent credit to get approved like a normal credit card

Generally, when you fill out a balance transfer request the credit card issuer will pull a credit report and your credit score(s) to determine your eligibility.

The inquiry will also show up on your credit report, and will stay there for two years.

It’s essentially treated the same as applying for a new credit card, because in most cases, that’s exactly what you’re doing with a balance transfer.

Over time, the impact of the balance transfer request will fade; it will be strongest in the beginning because you’ve just made a request for new credit.

FYI: You’re deemed a higher credit risk when you’re actively shopping for new credit so don’t apply for credit too often unless you need it.

What About Pre-Approved Balance Transfer Offers?

  • Your credit report may not be run in these cases
  • But inquiries are generally not impactful to your scores regardless
  • Credit scores tend to benefit more from paying off debt
  • So your focus should be more on living debt-free than worrying about credit pulls

There are times when a credit card issuer won’t pull credit, but those scenarios are somewhat rare – these pre-approved balance transfer offers, extended by your current credit card issuers, may not require a credit check.

Either way, the impact of new credit is the smallest factor in determining your FICO score, so you shouldn’t worry too much.

In conclusion, saving money via a 0% APR balance transfer will probably outweigh any negative impact of a balance transfer on your credit score (is a balance transfer a good idea?).

Just be sure to utilize balance transfers only when necessary, as numerous requests, especially in a short period of time, can adversely affect your credit.  You may also get rejected.

However, over time the balance transfer can actually improve your credit score as you’ll be paying down your credit card balance, which will improve your financial situation.

Tip: Avoid balance transfer requests before and when applying for more significant loans, such as auto leases or mortgages, as temporary declines in credit score are possible and could jeopardize those more important applications.

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