Does A Credit Card Balance Transfer Affect Your Credit Score?

Posted August 30 2017
by PenFed Your Money
Does A Credit Card Balance Transfer Affect Your Credit Score - PenFed Your Money Blog

A low-interest balance transfer to a new credit card can throw your budget a lifeline, but could it leave your credit rating to sink? There’s no one-size-fits-all answer to this common question. The ways a balance transfer affect your credit score depend on the rest of your credit history.

Credit utilization

The two places a balance transfer is most likely to affect are your credit utilization and a new credit inquiry.

Your credit utilization, often called your debt-to-credit ratio, is a key element of your credit score. It weighs the amount of credit you’re using (what you owe) against the amount of credit you have available (what you could still charge). For example, if you run up $1,000 in bills on a $5,000 credit limit, your credit utilization stands at 20 percent.

If you apply for a balance transfer offer and get approved for a new credit card, you’ll now have more available credit. That has a positive effect on your credit utilization, because your outstanding balance is now a relatively lower portion of the total amount of your available credit.

Credit inquiries

In order to approve you for a new credit card for a balance transfer, the lender will have to pull your credit score. This request from a credit agency generally adds an inquiry to your credit file, and inquiries cause your credit score to go down, at least for a short time. The impact from one credit card application won’t be significant, but if you apply for several balance transfer cards at once, you could see a dip in your credit score.

Try out the possibilities

An online credit score simulator can let you experiment with the effect on your credit score of actions like applying for another credit card. These simulators can also help you predict your credit score based on financial events such as maxing out your credit cards, paying them all off or applying for a new car loan or mortgage.

Many websites that offer free credit scores also offer credit score simulators. NerdWallet provides one as part of its free credit score service. This is one time when running the numbers yourself is smarter than asking a friend, because the results are different for everyone.

Is a balance transfer right for you?

A balance transfer can help consolidate your consumer debt and simplify your payments and monthly budget. If transferring your balances to a card with a lower interest rate would help you save money and pay off the debt sooner, a balance transfer could be a smart choice.

A balance transfer probably isn’t the right fit for you if:

  • You don’t have the money for the balance transfer fee.
  • Your credit card debt is already high. Giving yourself more rope could tempt you to add to your balances rather than whittle them down.
  • You’ll be maxing out the new credit card. Some credit score algorithms look not only at your overall credit utilization but your utilization per credit card. Adding another card at max capacity could put an ugly ding in your credit score.

Great balance transfer rates from PenFed

With so many credit card options from PenFed, you have smart options for managing your money. Earn rewards that fit your lifestyle, or keep it real with simple fees and low rates. Pick the card you want, then click to apply online.