Do balance transfers hurt your credit score?

A balance transfer can help you really tackle debt. Instead of paying double-digit interest rates on debt on one or more credit cards, a balance transfer credit card allows you to move what you owe onto a new credit card that charges little to no interest for a limited period of time, usually a year or more.

In the short term, a balance transfer can lower your credit score temporarily. However, in the long term, it can be a huge help if you use your card responsibly, giving you a chance to dig yourself out of debt. Plus, increasing your available credit with a new balance transfer card could improve your credit utilization ratio and, consequently, your credit score.

How do balance transfers affect your credit score?

Your score will drop when you apply for a balance transfer card

Every time you add a new credit card to your wallet, it can affect your credit score. This is because a card issuer will run a hard inquiry on your credit report when you apply for a card, which can shave off several points. The inquiry will stay on your report for up to two years, but the penalty will usually fade away within a few months.

It’s important to note that you don’t want to get turned down for too many cards when searching for a balance transfer offer. If you apply for several new cards but can’t get approved for any of them, all of those hard inquiries will lower your credit score. That’s why it’s important to check your approval odds before applying for a new card.

Your score will drop due to your new average length of credit history

Once you get a new card, your score will likely experience another temporary dip because your credit score is partly based on the average age of your credit. If you’ve had one card for four years and another card for six years, the average age of your credit is five years. But when you add a new card, the average length of your credit history goes down to a little over three years.

Your score might drop if your per-card credit utilization ratio is too high

Your new card also has a potential problem related to the credit utilization ratio. Your credit utilization ratio is the percentage of your total available credit that you’re using, and it makes up 30 percent of your credit score. Even though your credit utilization ratio is lowered overall by adding a new card, if you transfer all the debt onto one card, your per-card utilization ratio will be high on the new card.

Say, for example, you get a new card with a $15,000 credit limit. If you transfer $7,000 of your debt onto that card, you’ll have a credit utilization rate of 46 percent on that one card. For some credit agencies, that per-card rate can be a strike against your credit score since it’s generally recommended that you keep your credit utilization ratio under 30 percent.

How a balance transfer can improve your credit score

In the short term, a balance transfer can help your credit score by lowering your credit utilization rate. For example, say you currently have two credit cards. Your first card has a credit limit of $10,000 and a current balance of $5,000. Your second card has a credit limit of $4,000 and a balance of $2,000. Your total credit limit, then, is $14,000, and your total debt is $7,000. That gives you a credit utilization rate of 50 percent.

Remember, most experts recommend a credit utilization rate of no more than 30 percent, although consumers with excellent credit usually have a credit utilization in the single digits. To quickly determine this percentage for your own situation, check out our credit utilization ratio calculator.

Now, let’s say you get a third card with a balance transfer offer. This one has a credit limit of $15,000. Thanks to the addition of this card, your total credit limit is now $29,000. So, your $7,000 balance gives you an overall credit utilization rate of 24 percent (but a per-card utilization rate of 46 percent). That lower utilization rate will help improve your credit score.

In the long term, if you’re able to use the balance transfer to pay down your debt or eliminate it completely, that will also help to improve your credit score.

Is it worth it to transfer a balance?

A balance transfer should make paying down debt easier, not harder. It’s not a good idea to transfer debts to a new balance transfer credit card with the intention of adding even more debt to it by charging purchases to the card regularly.

If your balance transfer card has an introductory 0 percent APR period (usually between 12 and 21 months), you should be able to pay down debt faster and with less effort since you won’t have to worry about interest charges. Every payment will go toward your principal balance as long as you take full advantage of the 0 percent intro APR period.

In general, balance transfers make sense for consumers who have a lot of high interest debt to pay down. However, keep in mind that balance transfer fees of 3 percent to 5 percent apply to most balance transfer cards. So, if you’re transferring a balance of $7,000, a 3 percent fee would add $210 to your total balance to pay off. But if you pay down your total balance during your 0 percent intro APR period, a 3 percent fee is a small amount compared to the amount you would have paid in interest on another card.

The bottom line

Balance transfers will not make debt disappear, nor can they force you to change the spending habits that allowed the debt to accumulate in the first place. When deciding whether to apply for a new card with a balance transfer offer, consider what spending patterns you’re able or willing to change. If you think you’re a good candidate for a balance transfer card, and if you get approved for a balance transfer, make a debt repayment plan to help you pay it all off before the 0 percent intro APR period expires.

Learn more: How to choose a balance transfer credit card