How Does a Balance Transfer Affect your Credit Score? A balance transfer is one of the very last resorts that people look to in order to come out of debt. Anybody that is not looking to declare bankruptcy can simply look for a credit card balance transfer if they are drowning in credit card debt.
However, using a balance transfer to save you from debts can backfire which is why today we are taking a look at how a balance transfer affects your credit score.
There is really no special reward that you will get when you move your credit card balance from one account or One credit card to another. At times it might even seem that it is just a waste of time as you are not seeing any effect. But in this article, we are going to be taking a look at the positive and negative effects of a balance transfer to see if it is a good option for you.
What is a Balance Transfer?
A bottle transfer just as the name suggest is transferring your credit card balance from one account to another. If you are drowning in debt because the more you pay the more it seems it keeps piling up then one of the ways to consolidate debt is to simply do a balance transfer. In a balance transfer your existing credit card balance is moved to a new credit card so that you can focus on payments.
A balance transfer credit card is usually a credit card that offers low interest or a 0% introductory APR for some months. This is so that you can focus on paying off the principal of your credit card debt instead of the pain of both the principal and the interest at the same time making it seem that you are not making a dent in your debt. So the debt is moved to a new credit card so that you can focus on paying it.
How does a balance transfer affect your credit score?
Before making a balance transfer it is very important for you to use a balance transfer calculator to know if it is going to help improve the situation or not. Because a balance transfer card improves your credit score or negatively impacts your credit score. This is why you need to consider every aspect thoroughly before opting for a balance transfer.
Below I have described both the positive effect and negative effects of how a balance transfer card affects your credit score. So that you will know if a balance transfer is the right choice or option for you to consolidate your debt or so that you can look elsewhere.
How does a balance transfer improve your credit score?
A balance transfer card improves your credit score if it is properly done and properly calculated. It is definitely not going to directly increase your credit score but it will make overall improvements to it. Below is a list of ways that a balance transfer credit card can help improve your credit score:
The lower credit utilization ratio
Your credit utilization ratio is one of the key factors that determine your credit score. And your credit utilization ratio should not be more than 30% for it to work in your favor. Therefore getting a new line of credit will definitely keep your credit utilization ratio lower which will in turn increase or improve your credit score.
Fewer account balances
Having many accounts with balances is a turnoff to your credit report which will definitely deeping it. However, when you transfer your already existing balances from different accounts to a balance transfer it will help reduce the number of accounts with balances you have. When this happens successfully your credit score is bound to go up because it is a good thing for it.
How does a balance transfer hurt your credit score
Now that we have considered a good side of a balance transfer let’s go ahead and take a look at the bad side of a balance transfer. Below is a list of ways that a balance transfer will help to hurt your credit score:
Hard credit inquiry
When you apply for a credit card the credit card company or the lender will pull up your credit report which leads to a hard credit inquiry this type of inquiry usually takes a toll on your credit report. When there is an inquiry on your credit report it reduces it which is known as a hard inquiry. What this means is that someone has checked your credit report and it will lower the score.
Length of credit history
When you add a new line of credit to your credit history your length of Kent history is definitely going to be affected as a result of the new credit card you have gotten. So when a new credit card is added to your credit line it might trigger a small drop in your score.
It is very obvious that if you do not make responsible use of the new balance transfer credit card that you have received it will lead you to more debt. Because your new balance transfer credit card probably offers to 0% APR for some months and you might think that you have all the time in the world.
And if you do not become responsible and start making payments towards your loan immediately you might end up owing more. So you have to make responsible use of a new balance transfer credit card that you have so that you can quickly pay off a sizable amount of your balance before interest starts to kick in.
How to make balance transfer work for you
After you have successfully done your balance transfer one of the things that will make it not work for you is your habits. You should definitely refrain from those habits that got You into debt in the first place. Because if you still keep up with those happy you are definitely going to end up owing more than you already do.
So what you want to do is to review the past statements and evaluate how the money was spent. Do this to take proper account of everywhere the money went so that we do not repeat the same mistakes with your new credit card. Because if you continue doing so your balance transfer credit card is definitely not going to be of any help to you.