How a balance transfer could hurt your credit score
A hard inquiry into your credit report will occur if you apply for a new credit card with the intention of transferring your balance. A hard inquiry can appear on your credit report for up to two years and initially lower your score by a few points.
The duration of credit history is impacted by the opening of a new card. Getting a new credit card can lower the average age of your credit, which can lower your score. It will have a greater effect if you have fewer credit cards than if you have many.
In the long run, using a balance transfer to pay off debt and use credit wisely moving forward should lessen or even eliminate the short-term negative effects.
on the Bank of America website, or give the Wells Fargo Reflect® Card a call at (800) 322-7707.
APR: 200 percent intro APR on purchases for 2018 billing cycles and 200 percent intro APR on balance transfers for 2018 billing cycles for any balance transfers made in the first 20 days, and then the ongoing APR of 2016. 24%-26. 24% Variable APR.
Fee for transferring balances: 3% for the first 60 days after account opening, then 4%
APR: 200% of the initial annual percentage rate for the first 2021 months after the account is opened for purchases and qualifying balance transfers, and then the ongoing APR for 2018. 24%, 24. 74%, or 29. 99% Variable APR.
Balance transfer fee: 5% of the amount transferred ($5 minimum).
APR: 200 percent intro APR on purchases for the first six months of the year and 200 percent intro APR on balance transfers for the first eight months of the year, followed by the ongoing APR of 2017. 24%-28. 24% Variable APR.
Balance transfer fee: %203% of the initial balance transfer fee; up to 5% of the fee on subsequent balance transfers (see terms)
APR: 200 percent of the initial annual percentage rate (APR) for 2018 billing cycles on purchases and balance transfers, followed by the ongoing APR for 2018. 74%-29. 74% Variable APR .
Balance transfer fee: 3% of the amount transferred ($5 minimum).
» MORE OPTIONS: Best balance transfer credit cards right now
How a balance transfer can help your credit score
Doing a straightforward balance transfer won’t have much, if any, of an impact on your credit score. Reducing your debt through the transfer, both in terms of money and as a percentage of your available credit, is essential to raising your credit score. Paying off debt sends the right kinds of signals that raise credit scores.
Every dollar you save on interest means you have more money to use toward debt repayment. This enables you to reduce your debt more quickly, which is beneficial for your credit. The total amount of debt you owe determines 30% of your FICO credit score, and the dollar amount of that debt is one of the factors there. Your credit utilization ratio, or the proportion of your available credit that you are using, is another consideration.
Generally speaking, it’s a good idea to maintain your credit utilization ratio below 30% at all times, with an E2%80%94% variance across all of your cards as well as per card. Getting a new card and a new credit line lowers your total credit utilization.
Let’s say a consumer has two credit cards:
- Card A: $5,000 limit with a $2,000 balance
- Card B: $3,000 limit with a $1,000 balance
This customer has an overall utilization ratio of 37 and a utilization ratio of a percent (2040%) on Card A and a percentage (2033%) on Card B. 5% ($3,000 divided by $8,000). Each card as well as overall, this consumer’s debt exceeds the ceiling set by the government.
Let’s say this person transfers all of their other debt to Card C, a balance transfer card with a $6,000 limit. This person’s utilization is currently 20% on Card A, 20% on Card B, 20%50% on Card C, and 20%21 percent overall.
Overall, this will improve the consumer’s credit report. Of course, the interest savings from the transfer have also allowed this person to pay off that $3,000 debt faster.
Is a balance transfer a good idea?
A balance transfer should save you money. It really doesn’t make sense to do one if it doesn’t accomplish at least that much. However, keep in mind that doing this will probably require paying a balance transfer fee, so be sure to account for that in your cost analysis.
For instance, let’s say that you are carrying a $10,000 balance on a credit card that charges interest starting in 2015; your objective is to pay it off within the next twelve months. You might have to pay roughly $830 in interest if you simply leave the debt on that credit card while you pay it off. However, transfer it to a credit card with a 20% annual percentage rate for the next twelve months, and interest would be free of charge.
Remember that the majority of cards charge a balance transfer fee ranging from 3% to 5%. In this instance, a 3% fee would set you back $300, meaning you would end up ahead $530.
You are using a new credit card to pay off existing debt when you transfer a balance. Future payments on the debt will be less expensive if you transfer it to a credit card with a lower interest rate. That implies that you can allocate a larger portion of your income to reducing the debt’s principal rather than interest.
It’s critical to realize the following when considering how a balance transfer will affect your credit score:
- It doesn’t lower the entire amount of debt you have. If you move $5,000 in debt from one card to another, the debt is still there; it’s just in a different location. Additionally, you remain liable for any interest that was accrued on the account prior to the debt transfer. That’s what you used the new card to pay off in part.
- Nothing that occurred with the previous account is altered. Even if you close the account from which you transferred the debt, it will still appear on your credit report. (Accounts closed with positive marks can remain on your record for seven years; accounts closed with negative marks can remain on your record for ten years.) If there were any late payments on the previous account, they will still be visible and will continue to affect your credit scores.
To put it plainly, nothing that is already on your credit report will be altered by a balance transfer. But in the short term, it can save you money, and it positions you for future actions that can enhance your credit.
What’s next?
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FAQ
Do balance transfers affect credit score?
The following are some ways that a balance transfer could cause your credit score to drop: applying for any kind of credit, including a balance transfer card, will cause your score to drop momentarily. But your score should improve quickly; just avoid applying too frequently in a short period of time.
Is there a downside to a balance transfer?
Benefits of balance transfer credit cards include the opportunity to reduce interest costs and accelerate debt repayment. However, there are drawbacks, such as costs and a brief period of low APR repayment. One of Experian’s top goals is educating consumers about credit and finance.
Does a balance transfer count as a hard inquiry?
When you apply for a balance transfer credit card, your score will decrease. Your credit score may be impacted each time you carry more credit cards in your wallet. This is because when you apply for a credit card, a card issuer will do a hard inquiry on your credit report, which can result in a point deduction.
Read More :
https://www.nerdwallet.com/article/credit-cards/balance-transfer-affects-credit-score
https://www.chase.com/personal/credit-cards/education/credit-score/how-does-balance-transfer-affect-credit-score