Balance Transfer Credit Cards and Credit Scores

Even though we do not know the top-secret credit scoring formulas, we know the weight of its components in the calculation. The payment of a customer weighs the most – 35%, the amounts owed – 30%, the length of credit history – 15%, the types of credit – 10%, new credit – 10%. When applying for a new card, it's important to take into consideration the factors that may increase or lower your credit score.

And when it comes to balance transfers, it’s very important to understand how this or that move can affect your credit score. The best thing about balance transfer applications is the opportunity to transfer your high rate balance on the card with low rates and pay it down on good terms.

When moving the balance, you’re likely to be unsatisfied with the high interest rates of your old card and you may wish to cancel it. In fact, closing a credit card is a very common mistake of those people who make balance transfers. When you close out the account you’ve had for years, you decrease the amount of available credit and it may negatively affect your FICO score.

In addition to that, canceling old accounts may hurt your debt to credit ratio. Ideally, there should be a big gap between the available credit and your outstanding balances. Getting your balances below 30% of the available limits can help you maintain an excellent debt to credit ratio. Before transferring your balances, do a little homework beforehand. Be sure that balance transfers won’t hurt your debt to credit ratio and thus your credit score.

When you apply for a balance transfer card and open a new account, you may see a slight increase in your score rating. If you leave the old card open, applying for a new card can actually have a positive effect on your score, as the amount of available credit will be increased. Again, the individual results may vary greatly. The key is to keep a healthy debt to credit ratio and pay your balance off on time.

Another secret of successful balance transfers is to avoid making new purchases. Very often, balance transfer offers come with cash back or travel rewards programs, so you may be enticed to use your new card for making new purchases and collecting rewards. It’s all good and well, but first you should pay off your balance in full. After that you may feel free to make new purchases on your card.

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