Does a Balance Transfer Hurt Your Credit Score?

If you’re trying to pay off old credit card debt, you might have considered using a balance transfer credit card to do so. These cards allow you to transfer a balance from another credit card, and many have zero-interest introductory periods.

If you think you can pay off the old debt before the intro period ends, balance transfer cards can be an effective tool for paying down debt. But every financial product has its downsides, so you might wonder, “Does a balance transfer hurt credit scores?” Discover the answers before using this type of card.

Does a balance transfer hurt credit scores?

Yes, balance transfers can temporarily affect your credit score. In most cases, any drop in your score is small and short-lived. There are a couple of main causes of balance transfer credit score impact.

Hard inquiry from applying for a new card

When you apply for a credit card or other credit product, the lender looks at your credit report while making a decision. This is a “hard inquiry” or “hard pull,” and it usually causes your score to temporarily drop a few points.

Why does applying for a credit card lead to a score decrease? When you seek new credit, that’s a possible red flag to lenders. A hard inquiry means you’re seeking new debt, and taking on new debt may make it harder to meet existing financial obligations. 

Be especially careful to avoid multiple hard inquiries in a short period of time. That signals that you may be desperate for new credit, and it can cause your score to drop precipitously.

New account lowering your average age of credit

Your credit age isn’t one of the most important factors shaping your credit score, but it does make a difference. “Credit age” usually refers to the average age of all of your accounts, but lenders also take the oldest and youngest accounts on your report into consideration.

Generally, a higher average credit age suggests a better ability to manage credit. A lower average credit age suggests that you need to regularly open new accounts, and that’s something that gives lenders pause.

How a balance transfer can help your credit score over time

When used wisely, balance transfer credit cards can have a major positive impact on your credit.

Lower credit utilization

Credit utilization (the percentage of available credit you’re using) is the second most important factor in calculating your FICO score. A balance transfer card increases your available credit without increasing your debt. That means as long as you don’t continue to accumulate debt, your total credit utilization will decrease.

On-time payments on the new card

Your payment history is the most important factor in calculating your credit score. If you make all of your payments on the balance transfer card on time and in full, you’ll continue to build a positive credit history while also lowering your debt. 

If your credit isn’t where you want it to be right now, this benefit alone has the potential to transform your credit in a positive way.

When a balance transfer is worth it despite the credit impact

Like many credit-related decisions, getting a balance transfer can have both positive and negative impacts on your credit score. But do the benefits outweigh the costs?

Here are a few situations where getting a balance transfer card is probably worth it:

• Your interest savings outweigh the balance transfer fee (usually 3% to 5%)
• You’ll be able to repay the transferred debt during the 0% APR window
• You don’t think you’ll need to apply for a car loan, mortgage, or other major credit product in the next 6-12 months
• Eliminating your debt is a current financial priority

If you do get a balance transfer card, be careful to avoid falling into the common trap of continuing to use your older (and now empty) credit card for purchases. If you do this, you’ll end up with more debt, which can hurt your credit score and make it harder to reach your financial goals.

Looking to build your credit?

When used responsibly, a balance transfer credit card can be a great tool for saving money on interest and accelerating debt payoff. But before you start applying, it’s important to understand the potential balance transfer credit score impact.

If you’re trying to boost your credit score, it helps to have support, guidance, and a collection of tools at your disposal.

‍Kikoff can offer you all of that.

We’re a credit-builder app designed for people with poor credit, thin credit files, or no credit at all. We can help you build a positive credit history over time with credit lines, secured credit cards, and even credit-builder loans. Rent reporting, bill negotiation, and free dispute tools can help you take control of your credit, too.

We also understand that everyone’s path is different, which is why we offer our members personalized financial insights to help them get closer to their financial goals.

We don’t check your credit, and becoming a member is free. If you’re ready to start (or continue) your journey toward better credit, create your account with us today.