A balance transfer–or shifting the debt on one credit card to another–impacts everyone’s credit score differently. How and whether a balance transfer affects your credit score depends on the specifics of the transfer, your credit history, and other factors.
To better understand the potential impact of a balance transfer on your credit, it helps to learn about the factors that make up a credit score.
Do Balance Transfers Hurt Your Credit or Affect Your Credit Score?
Last Updated: March 10, 2024
5 min read
Key points about: how balance transfers affect your credit score
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Balance transfers can affect several factors that contribute to your credit score.
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Balance transfers can help your credit if you use them to pay down balances and reduce the percentage of available credit you’re using.
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Balance transfers can hurt your credit if you open too many new accounts at once or close older accounts after opening a new one.
How your credit score is calculated?
It’s important to remember that any change in your credit usage or credit payment activity may affect your score. Credit scores move up and down to reflect the latest information in your credit file. Checking your credit score is a good way to keep up with changes in your credit report and monitor the impact of positive or negative events.
A credit score provides a lender a quick way to gauge your creditworthiness by measuring the likelihood you will pay your loans back and whether you’ll do so on time. Your FICO® Credit Score (one of several credit scores available) is based on five main categories, each contributing a different percentage to the score.1
The five factors that are counted are:
- Payment history: This factor refers to a borrower making on-time payments to lenders. Missing payments can negatively affect a credit score. Payment history has the largest impact: about 35% of the score. If you do a balance transfer, it will be important to make on-time payments and begin steadily paying down any credit card debt you might have.
- Amount owed: The amount owed is your credit usage, which is approximately 30% of a credit score. Your credit utilization rate compares your total balances to your total credit limit, i.e. the percentage of your total credit being used. Generally, the higher your credit utilization, the lower your credit score will be.
- Length of credit history: Your length of credit history typically accounts for 15% of a credit score. Generally, a longer credit history will positively affect a score, all else being equal.
- New credit: New credit inquiries generally make up 10% of a credit score. Each time you apply for a new credit card, a “hard inquiry” is placed on your credit report. Applying for a new credit card to take advantage of a balance transfer offer can negatively affect your credit score, and can indicate a higher credit risk to lenders.
- Credit mix: Your credit mix is the different types of credit that you use, including each credit card, personal loan, car loan, mortgage, and more. Managing a mix of credit types can help your score because it shows you’re a more responsible borrower. Credit mix counts for 10% of a credit score.
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How do balance transfers affect your credit score?
How a balance transfer affects your credit score depends on many factors:
- Hard inquiry: A new card application means a hard inquiry into your credit report, which could impact your score. Too many hard inquiries in a short period of time can negatively impact your credit score.
- Credit utilization: Opening a new balance transfer credit card to take advantage of a balance transfer offer may help increase your total available credit. If you don’t increase your spending, increasing your available credit results in a lower credit utilization ratio. A general rule of thumb for how to build good credit is to keep your credit utilization rate as low as possible.
- Age of your credit accounts: If you open a new balance transfer credit card and then close your old credit card account, you’re decreasing the average age of your credit history.
- Payments on the new card: Taking a balance transfer on your new credit card and diligently paying down your credit card debt may save you money on interest. However, you’ll still need to pay off new purchases made with your new credit card to avoid paying interest on those charges.
Did you know?
A balance transfer to a new Discover credit card may have a positive impact on your credit score–depending on your current financial situation–along with other benefits. You may be able to pay off debt faster, consolidate monthly payments, or save money on interest with a low promotional APR.
How balance transfers help your credit
When you’re considering a credit card balance transfer to refinance your debts, it’s important to figure out what kind of interest rate and term durations will help you manage your debt most effectively.
Since the act of transferring balances won’t be the catalyst that heals or harms your credit itself, taking advantage of a lower APR can help you decrease your credit utilization ratio and help you make payments on time. The best credit card for a balance transfer typically has a lower interest rate.
Additionally, if you’re opening a new credit card to initiate a balance transfer, you may have a new credit card rewards program to participate in.
How balance transfers hurt your credit
On top of hard inquiries, opening new lines of credit for a balance transfer may mean that you’re lowering the average age of the accounts used to calculate your credit history. If you also cancel older cards, such as a single decades-old credit card, credit bureaus may look unfavorably at this departure, as it will lower the average age of your accounts further.
It's also a good idea to make sure you understand your credit card issuer's balance transfer fee.
Lastly, if you use your new balance transfer credit card to run up additional debt, then outstanding debt balances, interest charges, and late or missed payments may negate any hard work you’re doing to rebuild your credit.
When considering a balance transfer card, it’s important to stay informed and read the fine print carefully. Understand all the costs involved and think about the cost of the balance transfer versus the long-term cost of carrying high-interest debt.
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FICO® Credit Score Terms: FICO is a registered trademark of Fair Isaac Corporation in the United States and other countries.
Discover Financial Services and Fair Isaac are not credit repair organizations as defined under federal law or state law, including the Credit Repair Organizations Act. Discover Financial Services and Fair Isaac do not provide “credit repair” services or assistance regarding “rebuilding” or “improving” your credit record, credit history or credit rating.
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There is no hard inquiry to your credit report to check if you’re pre-approved. If you’re pre-approved, and you move forward with submitting an application for the credit card, it will result in a hard inquiry which may impact your credit score. Receiving a pre-approval offer does not guarantee approval. Applicants applying without a social security number are not eligible to receive pre-approval offers. Card applicants cannot be pre-approved for the NHL Discover Card.
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