How Does a Balance Transfer Affect Your Credit Score?
4 Min Read | Last updated: September 13, 2024
This article contains general information and is not intended to provide information that is specific to American Express products and services. Similar products and services offered by different companies will have different features and you should always read about product details before acquiring any financial product.
Learn how making a balance transfer might affect your credit score and what you may be able to do to make sure any negative impact is only temporary.
At-A-Glance
- The simple act of making a balance transfer won’t hurt your credit score, but opening a new balance-transfer credit card could cause a ding.
- Any “negative” effects of opening a balance transfer credit card are usually temporary.
- There are several ways a balance transfer might help boost your credit score, too.
Balance transfers can be a pretty useful tool, if you do it right. A balance transfer lets you move credit card debt from one credit card account to another, usually a new account with an introductory 0% APR and maybe no balance-transfer fee. Not only may this make it easier to pay off your credit card debt thanks to a lower interest rate, but in the long run, it might also improve your credit score by decreasing your credit utilization ratio. Still, be aware that opening a new credit card in order to make a balance transfer may have not-so-favorable consequences.1
Does a Balance Transfer Hurt Your Credit Score?
The simple act of transferring your balance won’t directly affect your credit score. But opening a new balance transfer credit card to transfer another card’s balance could have an impact on a few of the factors that might affect your credit score:
- Hard inquiries: Before you open a balance transfer credit card, the card issuer might perform a hard credit check. Hard inquiries appear on your credit report and usually result in a temporary dent in your credit score.1
- Account age: Opening a new line of credit will decrease the average age of all your accounts. This can cause a dip in your credit score because lenders typically associate a long credit history with greater financial responsibility.2
Balance Transfers Can Help Your Credit Score, Too
Despite any potential dings in your credit, responsible use of a balance transfer credit card will almost always improve your credit profile in such a way that, over time, you’ll likely overcome the short-term negative effects on your score. But it pays to maintain good financial habits.
Here are a few ways balance transfers can help your credit score:
- They decrease your credit utilization ratio. If you open a new credit account to do a balance transfer, that new account will increase your total available credit, thereby reducing your credit utilization ratio. This might have a positive impact on your credit score because a low ratio tells lenders that you’re likely making charges that you can repay.1
- They may help you get out of debt. Generally speaking, if you’re able to use a balance transfer to your advantage – to get out of debt faster and with less interest – and you don’t pile on more credit card debt while paying it off, you’ll likely see an improvement in your credit score over time. Why? Carrying high amounts of credit card debt can hurt your credit score, so paying off that debt will lower your credit utilization ratio.1
- They can encourage you to make on-time payments. Payment history weighs heavily in determining your credit score. Consistent on-time payments will help boost your credit score in the long run.3 Knowing you need to pay off a balance before the 0% intro APR period ends may keep you motivated to pay on time.
How to Keep Your Credit Happy After Making a Balance Transfer
Many people will see a slight ding in their credit score after opening a new credit card to make a balance transfer.1 The good news is that with responsible credit habits, such dips are temporary, and the benefits of a balance transfer often outweigh the downsides. Even better, a few additional tips may further help you offset any negative impact of a balance transfer:
- Keep older credit card accounts open to contribute to your average account age.2
- Don’t apply for more new credit right away – new hard inquiries can further hurt your credit score, and rapidly opening new credit accounts can represent greater credit risk.2
- Create a budget to help you pay down debt and decrease your credit utilization ratio.
- If you can’t pay off your card balance in full each month, avoid putting new charges on your balance transfer card. This will only add to your credit utilization ratio and increase the debt you’ll need to repay.2
- Set up autopay to make sure you pay your bill on time every month.
Overall, to make sure a balance transfer doesn’t hurt your credit score, use your new balance transfer credit card as a strategic tool to eliminate debt faster and with less interest – not merely as a way to move debt from one place to another without paying it off.
The Takeaway
When you’re taking positive steps to manage credit card debt, it can feel a bit discouraging to find out that a balance transfer can indirectly hurt your credit score. But don’t worry. If you follow good spending habits, your credit score will benefit over time. Sometimes you have to lose a little in order to win a lot.
1 “What Is a Balance Transfer Credit Card and How Does It Work?,” Equifax
2 “What is New Credit?,” myFICO
3 “What is Payment History?,” myFICO
Megan Doyle is a business technology writer and researcher whose work focuses on financial services and cross-cultural diversity and inclusion.
All Credit Intel content is written by freelance authors and commissioned and paid for by American Express.
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The material made available for you on this website, Credit Intel, is for informational purposes only and intended for U.S. residents and is not intended to provide legal, tax or financial advice. If you have questions, please consult your own professional legal, tax and financial advisors.
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