Do Balance Transfers Affect My Credit Score?

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With the post ABCs of Balance Transfer, you know about what Balance Transfer ( BT ) is . But do balance transfers affect your credit reports and your credit score? The answer to this question really depends on your situation and how you’re doing it.

What debt percentage is?

Suppose you only have a valid credit card account and you owe $5,000 on that account. The credit card company (assume A) has a total credit limit of $10,000. For this account, your debt is 50% of your total credit line. We’ll call this your “debt percentage”.

How to deal with the original account?

One day you find out that another credit card company B has a fixed interest rate of half that of your current card company A! To save money, you decide to apply for B’s credit card and transfer your $5,000 balance from A to B. How to deal with account A after balance transfer?

If Credit Card A has been in use for two years or more, and you have maintained a good credit history, it is probably in your best interest to keep your account A open (even if you don’t use it), especially credit limit of credit card B is lower than credit card A. Because increasing your “debt percentage” is bad for your credit score. If you keep both accounts open, you will have a total credit limit of $10,000+. With $5,000 in debt on your B card, and no balance in your original A account, your debt percentage will be less than 50%.

The other scenario is that assuming your credit limit at B remains the same and you close your credit account A. The percentage of debt is still 50%, just as it was at the beginning. But add in a newly acquired credit card with almost no payment history, your credit score will almost certainly decline, at least until you have a longer payment history on your new account.
Obviously, for this example, it would be better for both accounts to remain open.

Keep lower debt percentage

If you don’t want your credit score to drop that try to avoid doing anything to increase your percentage of debt. A lower percentage of debt may offset your lower score from getting a new credit card. And even if your “revolving credit” carries the same amount of debt, a lower percentage always looks better. Your credit report will look better in the future, too.

But it’s not advisable to apply for more credit than you need in order to lower your debt percentage to help your credit score. Getting any new credit usually lowers your credit score slightly, at least for a while. Applying for credit too much and too often almost always has a negative impact on your credit score, which is not what you want. Trying to pay off this debt is the right thing to do.

Information is the key for balance transfers to have a positive affect on your credit score. The right way to do will save interest without damaging your credit score.

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