Can a Balance Transfer Hurt Your Credit?

Using a balance transfer to move other high-interest debt to a balance transfer credit card — especially one offering a 0% introductory APR — can help you pay off that debt faster since you’ll be saving on interest charges. But before you apply for a balance transfer card, know that it can have both a positive and negative effect on your credit score. Still, in the long term, a balance transfer can actually improve your credit score if done carefully.

The main way a balance transfer can help improve your credit score is by reducing your utilization. It’s calculated both on a card-by-card basis and across all your cards. However, only accounts with revolving credit lines — as opposed to personal loans — are factored in your credit utilization. The less available credit you’re using (lower utilization), the better for your credit score — utilization accounts for 30% of your FICO® Score.

When you open a new balance transfer credit card, you’re adding a new line of credit and thereby reducing your overall credit utilization if you are carrying debt on other credit cards. And if you use the balance transfer to pay off a balance on another card, then that card’s utilization ratio is reduced. Your new balance transfer card will likely have a high balance, though as you begin to pay down that balance over time and don’t add any new debt, your credit score should go up.

In doing a balance transfer to a credit card you already have, your overall credit limit doesn’t change — however, your utilization on that individual card will rise until you knock that balance down, resulting in a temporary dip in your score.

The key thing to remember when doing a balance transfer is that the goal is to reduce your debt load, which will ultimately factor favorably upon your credit score.

When you open a new credit card, the application generates a hard inquiry, which typically lowers your credit score about 5–10 points and stays on your credit reports for two years. This means once you open a new balance transfer card, you should expect to see your score go down a bit. However, you can also expect the inquiry to no longer affect your score after one year.

If you take advantage of a balance transfer offer on a credit card you already have open, no inquiries will be generated, and your credit score shouldn’t suffer. However, it will ding your credit score as you add more debt to your existing card, but as you pay down that balance, your score should come back up even better than before if you don’t add any debt to your cards.

Also beware that it will hurt your credit score if you build up more debt on the card you moved the balance from after doing the transfer. The second-most-important factor affecting your FICO® Score (the credit scoring model lenders typically use when deciding whether or not to issue you credit) is amounts owed, and the closer you get to maxing out a card, the riskier of a borrower you appear to be.

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. If you’re not sure your credit is good enough, a personal loan might be a better fit.
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 add up to $120. However, you might still end up saving money by avoiding interest charges. For example, if you were to pay off a $4,000 balance over 21 months on a credit card with a 20% APR, you’d end up paying about $688 in interest on top of the principal. Even after a $120 balance transfer fee, you could save in the ballpark of $568.
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 18 months long. It’s even possible to find cards with 0% intro APR periods as long as 21 months (two such cards are listed below). Figure out what you can afford to pay each month and how long it will take you to pay off the entire balance, and this will help you when choosing a card.

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 a couple weeks — or longer. You must make any payments due in the interim.
2. Budget a specific amount to pay toward your balance every month. It’s important to commit to paying off your balance before the 0% intro APR ends, otherwise you’ll face interest charges at the regular APR.
3. Avoid building up debt with new purchases. Doing a balance transfer can help you get out of debt and improve your credit score by reducing your utilization, but only if you don’t build up additional debt. Don’t put new purchases on your balance transfer card, and don’t let a new balance build up on your old card.

When choosing a balance transfer card, first, pick a different issuer than your current card is from. You can’t transfer balances between cards from the same issuer. Next, evaluate how long you’ll need to pay off your debt. Depending on what balance transfer card you choose to apply for, you might get a 0% intro APR period ranging from 12 to 21 months. Finally, evaluate if you’re willing to pay a balance transfer fee, and if so, how high. Some of our top picks, based on an analysis of cards available on LendingTree and from major issuers, are below.

Applying for a balance transfer isn’t always the right move. For example, with poor or fair 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 a balance transfer can be a great way to get out of debt if you’re disciplined about it. And 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 debt and would like to pay it down without accruing more interest.
• You have good to exceptional credit and haven’t applied for too many new credit cards recently.
• You’ve budgeted a monthly payment that will pay off your balance before the 0% intro APR ends.

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.

You can use a personal loan to pay off debt from one or more credit cards, and unlike a balance transfer card, 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 a credit card that doesn’t have a 0% APR period active.

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