What happens to your credit card after a balance transfer?

Balance transfer cards allow you to move a credit card balance that may be subject to a high APR to a new account that features an introductory 0 percent APR offer. However, it’s important to understand that transferring a balance to a new credit card will not close the account of the original card — the balance will simply revert to zero.

Given that, you might be wondering, when you transfer a balance on credit cards, what happens? And what should you do with your old credit card once you’ve paid it off? While it might be tempting to close it to help avoid racking up more credit card debt in the future, keeping the card open is likely the smarter move for most people.

Here are a few things you should consider about how a balance transfer impacts your accounts, your credit score and what you should do after completing a balance transfer:

What happens to your old credit card after a balance transfer?

So, what happens to your old card when you first initiate the balance transfer? Once the transfer completes, your balance drops to zero, or whatever is left in that you didn’t transfer. For example, if you were unable to transfer the entire amount due to your new card’s balance transfer limit, you’ll need to keep making payments on your old card and won’t have the option to close it just yet.

If you do transfer the full amount and have the option to close the account, consider, instead, keeping it open for the sake of extending your credit history.

Consider setting up an automatic subscription payment on the old card, like Netflix or your local paper delivery, and then enroll in autopay for your statement. This will allow you to keep a small amount of activity on the card and continue building a positive credit history. That said, if you’re paying a high annual fee, or you’re concerned about the temptation to overspend, you might be better off closing the old card account.

What happens to your new account once you pay off the balance?

Although you may have opened a balance transfer card for the sole purpose of consolidating and paying off your debt, that new account won’t automatically close after you pay off the balance.

The best balance transfer credit cards tend to be lighter on ongoing perks since their biggest feature tends to be a generous intro APR offer on balance transfers. However, there are still reasons to keep your new account open, even after you’ve completed and paid off your transferred balance.

In addition to benefiting your credit score, you may also be able to earn modest rewards on future purchases or use ongoing consumer protections depending on what else your card offers. If you demonstrate responsible usage of the card over time, it’s possible the issuer may also reach out to you with another balance transfer offer in the future.

Keep in mind that, because of the way balance transfers work, they shouldn’t have a long-term negative impact on your credit score on their own. You’ll get a new hard inquiry on your credit reports when you apply for your new card that can temporarily ding your score, but paying off your old card balance and increasing the amount of available credit you have should actually help your score in the long run.

Money Tip: If you’re preparing to apply for a mortgage, it’s best to hold off on applying for any new credit, including credit cards. Even modest dings to your credit can affect your mortgage rate, which can have a sizable impact on how much you pay in interest over the course of a lengthy mortgage loan.

Questions to consider before canceling your new card or your old one

Applying for a new balance transfer credit card means you’ll likely be left with a secondary credit card (your old card) you no longer need. You will have transferred your old balances to your new card to get a 0 percent APR for a limited time, and you may be tempted to close the old account altogether.

Before you do that, you should ask yourself some important questions, including how this move will impact your credit for the long run.

What are some reasons to keep both accounts open?

There are a number of benefits to keeping both your old account and your new account open after transferring and paying off a balance. Having available credit should improve your credit utilization ratio, which will boost your score, as well as give you extra spending power if needed.

Also note that the oldest credit cards you have extend the average length of your credit history, and this makes up 15 percent of your FICO credit score. This means keeping your old account open could boost your credit in this category without any work on your part. All you have to do is keep the account open and store it somewhere safe for the long-term.

What are some reasons to close your old account?

There are several reasons to consider closing your old card as well. For example, you may want to close your old card in these situations:

• Paying an annual fee on either card won’t give you enough benefits to offset the cost to carry the cards
• You’re concerned about accruing new debt
• You’re feeling overwhelmed by the idea of managing multiple credit cards

In these cases, closing your old card, your new balance transfer card or even both cards may be best for you. Just keep in mind that you may see a dip in your credit score as a result.

What will happen when you cancel your new balance transfer credit card?

If you’re thinking of canceling your balance transfer credit card at some point, you should know about the temporary impacts you could see to your credit score. Canceling a credit card could shorten the average length of your credit history, which could cause your score to drop. Closed accounts in good standing will stay on your credit report for up to 10 years, so this impact won’t be immediate.

More importantly, closing a credit card can have a major impact on your credit utilization, as it reduces the amount of credit available to you. If you carry balances on other credit cards, closing an account could cause your overall utilization rate to increase, thus causing damage to your credit score.

Before closing your account, consider using Bankrate’s credit utilization calculator to see how your credit score will be affected by a decreased credit limit.

The bottom line

Canceling a balance transfer card may cause a temporary negative impact on your credit score, but it won’t derail your credit over the long haul. Then again, you can also keep your balance transfer credit card open in order to lengthen your credit history and stabilize your utilization rate. What happens after a balance transfer is really up to you, but make sure your decision is an informed one.