Balance transfers are a money-management strategy that can lead to big savings. Cards with low APRs and balance transfer options allow you to consolidate your credit card balances and reduce what you have to pay in interest.
If you’re thinking of transferring a balance, it’s important to get a full picture of what will happen to your credit scores. Part of that is understanding the effect that balance transfers have on your credit score.
How a Balance Transfer Can Affect Your Credit Score
Because the effects of a balance transfer may be hard to predict, it’s important to arm yourself with as much information as possible before you move any open balances.
Scenario A) Let’s say you have several credit cards open with a high balance on one of them. If you move this balance to another card with a lower interest rate, it won’t affect your credit score. Keeping your current credit cards and not applying for any new ones will prevent any hard inquiries on your credit report. In this case, transferring balances between credit cards while maintaining payments will help you save on interest and keep both your available credit and your credit utilization ratio unchanged.
Scenario B) However, opening a new credit card with a low APR for the purpose of transferring an existing balance extends your line of credit; therefore lowering your credit utilization ratio. This method may increase your credit score but can also trigger a hard inquiry or credit check on your report. Keep in mind that major credit scoring institutions like VantageScore® and FICO® will regard both credit limit and credit score when reviewing your loan application.
Balance transfers can have a negative impact on your credit score if you repeatedly open new cards to avoid paying interest. It may be tempting, but this will only hurt your credit score. Cycling through new cards reduces your average account age which is a huge determining factor in credit scoring. Not to mention the hard inquiries that occur when constantly opening new cards. If you want to qualify for any loans in the future, it’s best to avoid repeat balance transfers.
How to Raise Your Credit Score With a Balance Transfer
1. Apply to Just One Card
To minimize the negative effects on your credit score of a hard inquiry or credit check and new credit, apply for just one card. Choose a balance transfer card that also offers a low introductory APR and do your research before applying.
2. Keep Your Existing Cards Open
By not canceling any of your cards (even when you have paid off the balance entirely through a balance transfer), you’ll keep your average account age and credit mix intact.
3. Take Advantage of Low APR or Introductory Rates
Proactively using a balance transfer to pay down debt could help you improve your credit score. Approaching a credit card company about a balance transfer allows you to put a temporary hold on interest charges that gives you time to get control of your spending. Paying off more than the minimum payments will drive your score higher by on-time payments and reducing your debt.
Apply for a Balance Transfer at MECU | Credit Union in Jackson, MS | Byram, MS | Pearl, MS
At Members Exchange, we care about your financial future. If you are someone who would benefit from a balance transfer, now is the time to take advantage of our $0 transfer fee. Have an existing credit card with Members Exchange and would like to request a balance transfer? Want to learn more about our balance transfer program in Mississippi? Reach us at 601-922-3350 to get started.