Q&A Video: How Does a Large Balance Transfer Affect My Credit Score?

John Ulzheimer

John Ulzheimer | Q&A Videos

Jan 08, 2016 | Updated Jan 12, 2016

Are you thinking of making a balance transfer?

Learn how a large balance transfer affects your credit score here from our credit expert, John Ulzheimer.


Hi. My name is John Ulzheimer, and I’m a credit expert who contributes to CreditCardInsider.com. Today’s question is this…

How does a large balance transfer affect my credit score?

That’s a very good question. Balance transfer offers are very aggressive these days. In fact, many credit card issuers are offering cards for balance transfer purposes with 0% interest on the transferred end balance. And also 0% interest on new charges for somewhere between 6 months to up to a year and a half in some scenarios.

And some of them, believe it or not, are actually allowing you to transfer a balance in out without paying a balance transfer fee. So the offers are very aggressive and they’re actually very good for consumers who want to stop paying for some small period of time so that they can aggressively pay off the balance on the card. And then they have don’t have to worry about interest anymore because there is no balance.

But one of the concerns you should be worried about, or the issues you should be concerned with at the very least is… What is the impact on my credit score for doing something like this? And there’s a lot of moving parts to the answer, so let’s go through some of them.

First off, when you make the application for the card that you’re going to use as the balance transfer recipient, you better have good credit because credit card issuers are not issuing those types of cards with 0% interest deals, and very high credit limits for people who have poor credit. So you better have good credit scores in order to even get those cards to begin with.

Second, when you apply for a new card the credit card issuer is going to pull one of your credit reports, just one of them. And you don’t know which one their going to pull. Pulling your credit report is going to leave a credit inquiry on that particular credit report. And while credit inquiries are the least most important variable in your credit score, it’s a fact that they can lower scores. So that’s something you should be concerned with.

When you open the card the actual card account is going to show up, very likely, on all 3 of your credit reports. When that happens, it’s going to lower the average age of the accounts on your credit report, because you just added a brand new account. So it’s going to pull the average down. That can affect your score as well. In fact, relative to inquiries, it’s worth 150% the value of inquiries. And people love to obsess about inquiries. So that’s something to keep in mind as well.

That’s going to affect all 3 of your credit scores, because the account is likely going to show up all 3 of your credit reports. Now let’s talk about what the affect of the debt is going to be. This actually is a positive believe it or not. If you have multiple credit cards, all with balances, and you open a new card, and then you transfer all those balances onto the new card, what you have just effectively done is you’ve eliminated multiple accounts with balances. And now you’re just left with one card with a balance.

You should see your credit score improve simply by doing that, because credit scoring models penalize you for having too many accounts with balances. Obviously reducing that number to the one card is going to be very helpful. Another thing that you’ve also done that you may not even realize, is that you’ve just lowered what’s referred to as your revolving utilization or your debt to limit ratio.

When you had all these balances on multiple cards you had some relationship between the balances and limits on those cards. Let’s just say hypothetically it was 75% which is very very bad. When you opened the new card that new card has some amount of unused credit limit. So that lowered the ratio of balance to limit. And your score likely went up when you did that.

Now just because you’ve transferred all those balances in it doesn’t mean that you’re utilization percentage goes up. It actually stays the same because you still have the same amount of credit limits on the existing cards, and the same amount of credit limit on the newly opened card, and the same amount of balances across all the cards. So your ratio stays the same. So from a net score impact perspective, that’s actually going to be positive.

Now, don’t make this mistake. Don’t go and close all of these cards that you pulled the balances from, because if you do close those cards your debt to limit ratio is actually gonna go up. And it could go up considerably, and then your scores gonna drop, which is a bad thing. So leave those cards open.

Don’t use them because you don’t want to get back into debt twice over, because it’s unlikely you’re gonna be able to open another balance transfer card to be able to deal with those. So use them responsibly. Use the balance transfer card to pay off your balances as quickly as possible. Then you never have to worry about interest rates ever again.

Learn everything you need to know about balance transfers in our learn section »

If you have any other questions pertaining to credit or other financial topics, please submit them to CreditCardInsider.com. Thanks a lot for watching. Have a great day!

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