Can a Balance Transfer Hurt Your Credit Score?

Find out what a balance transfer means for your credit score and when it’s right for you.

Laura Adams, MBA
3-minute read

Can a Balance Transfer Hurt Your Credit Score?


A Money Girl Facebook follower named Derek H. asks:

“Will using a balance transfer credit card hurt my credit score—and how can I know if it’s right for me?”

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What Is a Balance Transfer Credit Card?

A balance transfer is a promotion offered by a credit card company that allows you to transfer debt to a new credit card and pay low or no interest on the balance for a limited period of time. Balance transfers are typically used to pay off all or a portion of higher interest debt, such as a credit card or loan, and move it to a card with a lower interest rate.

Depending on the terms of the offer, using a balance transfer card to pay less interest can add up to big savings. You could use the money to pay down the principal balance on the card faster and avoid even more interest charges.

Every balance transfer offer is different, so be sure to read the fine print carefully. Most charge a transfer fee that ranges from 3% to 5% per transfer. Some charge high interest rates after the promotional period expires; however, the best transfer cards offer a reasonable interest rate after the grace period, given your credit rating, of course. The amount you can transfer is subject to the credit limit you receive on the card.

Related Content: Does Paying Credit Card Debt Improve Your Credit Score?

Does a Balance Transfer Hurt Your Credit Score?

If you could benefit from a balance transfer, you might be like Derek and wonder how it would affect your credit. It depends on several factors, such as:

  • whether you use a balance transfer to pay off a credit account in full

  • the total balance you transfer

  • whether you close a credit account

  • how much new available credit you’re given

One of the factors used to calculate credit scores is the number of recent inquiries in your credit file, such as applications for new credit. Inquiries only make up a small percentage of your scores, so applying for a new credit card will typically cause a slight, temporary reduction.

However, there’s another, more important factor that determines credit scores called the credit utilization ratio. Your ratio is the amount of debt you’re carrying on revolving accounts (such as credit cards and lines of credit) divided by your available credit on those accounts. Using 30% or less of your available credit is recommended for optimal credit.

Getting a new credit card instantly raises your total available credit, which lowers your credit utilization ratio, and boosts your credit scores. The opposite is true when you close a credit card. So, as long as you don’t close a card after transferring a balance to a new card, the net effect should raise your credit scores.

Related Content: Credit Utilization—What It Means for Your Credit Score

Loans don’t factor into credit utilization ratios; however, having a mix of both installment loans—such as a car loan or mortgage—and revolving accounts is beneficial for your credit. Therefore, paying off a loan by transferring the entire balance to a transfer card could have a negative effect on your credit, especially if it were your only installment account.

But the effect of closing a loan would probably be a wash against the positive effect of receiving additional available credit on the transfer card. Additionally, the result of any change to your credit always varies depending on your unique credit history.

Related Content: Does Paying Off a Loan Raise Credit Scores?

Should You Do a Balance Transfer?

Unless you have a big purchase planned for the near future, such as buying a home or car, I wouldn’t be too concerned about the credit implications of a balance transfer. Instead, focus on whether it would save you money and improve your overall financial health in the long run. If you need help crunching the numbers, use the Balance Transfer Calculator at bankrate.com.

Other Articles and Resources You Might Like:

6 Ways to Pay Off Credit Card Debt
Get Out of Credit Card Debt or Save—Which Is Better?
7 Steps to Check and Correct Your Credit Report
Get Your Free Credit Score (Without Hurting Your Credit)
9 Things That Can’t Hurt Your Credit Scores

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About the Author

Laura Adams, MBA

Laura Adams received an MBA from the University of Florida. She's an award-winning personal finance author, speaker, and consumer advocate who is a frequent, trusted source for the national media. Money-Smart Solopreneur: A Personal Finance System for Freelancers, Entrepreneurs, and Side-Hustlers is her newest title. Laura's previous book, Debt-Free Blueprint: How to Get Out of Debt and Build a Financial Life You Love, was an Amazon #1 New Release. Do you have a money question? Call the Money Girl listener line at 302-364-0308. Your question could be featured on the show.