Almost every major credit card issuer has at least one credit card with a great balance transfer change that will allow you to pay no interest for at least six months. If you are currently paying a high interest rate on one of your credit cards, you can jump at the opportunity to apply for a credit card to transfer your balance and switch balance. Balance transfer can help you save money on interest, but it could hurt your credit score.
How your credit score is calculated
First, let’s look at how a credit score is calculated. Your credit score is calculated based on five basic factors at different scales: payment history, debt level, loan age, loan mix, and recent credit applications. Balance card transfers can affect your credit score in these areas: debt level, loan age, and recent credit applications.
Balance transfer and loan utilization
Your credit score considers your credit card’s balance against their credit limits (this ratio is known as credit utilization) and total credit card balances compared to your aggregate or total credit limits. This portion is 30% of your credit score. The higher your credit usage, which means the higher your balance is compared to their credit limit, the lower your credit score will be.
If you transfer your balance to a credit card with a lower credit limit than your previous card, your credit utilization will increase and you may lose credit.
Fortunately, you can recover your lost credit points by paying off your balance quickly. Ideally, your credit card balances should be below 30% of your credit limit.
Credit Cards New Balance Transfer Lower Credit Age
The credit period measures how long you use the loan and counts for 15% of your credit score.
This portion of the credit calculation averages the length of your credit accounts and the age of your oldest account. If you remember the average of elementary school math, you can see how opening up new credit cards will lower your average credit age. It’s similar to how a bad test grade could lower your overall grade point.
Transferring a credit card balance to an account that has already been opened will not damage the credit score in terms of the credit period. However, if you open a new credit card, your average credit age will decrease.
Credit card transfer credit card applications accepted
You probably know that any credit investigation makes little savings in your credit score. Since recent credit applications are 10% of your credit score, applying for a balance transfer credit card can cause your credit score to decline. Only the app affects your credit score, not its approved or negative outcome.
FICO, the developer of the widely used credit score, says investigations typically only hurt a credit score of five points or less depending on other information in your credit report. The other good thing is that only your assignments from the last 12 months will affect your credit score.
Balance transfers involve more than bonuses
While balance transfers may affect your credit score, you can recover your lost points by paying on time, reducing your balance with regular minimum payments and waiting before you submit new credit card applications.
Do not rule out balance transfers because of the potential impact on your credit score. Consider the costs of balance transfers and the costs of incorrect transfers to help you make your decision.