Does balance transfer affect credit score?

ADVERTISING DISCLOSURE

ADVERTISING DISCLOSURE:
Credit-Land.com is an independent, advertising-supported web site. Credit-Land.com receives compensation from most credit card issuers whose offers appear on our site. Compensation from our advertising partners impacts how and where their products appear on our site, including, for example, the order in which they may appear within review lists. Credit-Land.com has not reviewed all available credit card offers in the marketplace.

Credit Card Applications » Research » Guides » Balance Transfer Cards » Does balance transfer affect credit score?

Does balance transfer affect credit score?

Balance transfer is a credit facility offered by financial institutes to card holders to transfer their existing debt amount to another account with lower interest rates. This facility is very popular among card holders as it allows them to save money by availing themselves of lower or zero interest rates offered by the credit card companies. On the other hand, companies use this policy to attract customers towards themselves for business purposes.

Different aspects of balance transfer

Balance transfer has an effect on the credit score of the customer. Before understanding the process we need to first have a brief understanding of the different aspects of balance transfer.

  1. Balance transfer fee
  2. Introductory period of low interest rates as offered by the bank.
  3. Annual fees charged for holding a balance transfer account.

If the above aspects of balance transfer are not kept in mind then it would lead to a huge accumulation of charges that would increase the credit limit.

How does balance transfer affect our credit score?

Balance transfer from an account of higher interest rate to a lower interest rate is beneficial in saving our money. One must however remember that it also has an effect on the credit score.

Age of the active account

In this case the score gets calculated on the basis of the number of credit lines and the period for which the lines remained open. In case a customer closes a credit card account after transferring the balance then this would lead to negative scoring.

The lesser the number of credit transfers the better is the score

In case the customer holds a number of credit lines, when an inquiry is placed a number of companies file their reply. This gives a bad impression of the debtor showing that he has been scrambling for credit lines.

Amount of outstanding debt

When computing a credit score the amount of credit available and the amount of credit used is taken in to consideration. So, when the balance gets transferred to a new account this opens a new credit line. This also increases the credit availability while closing the old line would again decrease the amount availability. These factors on tallying give the credit score of a person.

Debt percentage

Debt percentage is the amount of credit that is used. The lesser the usage the better will be the debt percentage and hence a positive credit score.

The option of balance transfer if used properly will not only help in producing financial benefits but also help in increasing your credit score.

Disclaimer: This editorial content is not provided or commissioned by the credit card issuer(s). Opinions expressed here are the author's alone, not those of the credit card issuer(s), and have not been reviewed, approved or otherwise endorsed by the credit card issuer(s). Reasonable efforts are made to present accurate information, however all information is presented without warranty. Consult a card's issuing bank for the terms & conditions.
All rates and fees, and other terms and conditions of the products mentioned in this article/post are actual as of the last update date but are subject to change. See the current products' Terms & Conditions on the issuing banks' websites.
Add to Favorites:
Get the latest news, articles and expert advice delivered to your inbox. It's FREE.

Related Research:

Top 5 Cards for Travel from Our Partners: Winter 2017/18 – Expert Choice

Top 5 Cards for Travel from Our Partners: Winter 2017/18 – Expert Choice

Posted: February 12, 2018

Nights are still drawing out, the wind is cold, and the air smells like snow already - the winter is close. Christmas and holiday season are approaching swiftly, and overwhelming gift ideas are swirling chaotically in your mind. Ready or ... Continue reading
Cash Back or Travel Rewards? Here’s How to Decide On The Right Card

Cash Back or Travel Rewards? Here’s How to Decide On The Right Card

Posted: February 10, 2018

If you're trying to find the perfect rewards credit card, you might feel like you're drowning in options. There are just so many out there, and many of them look similar. This can make it tough to decide on a card. One thing people often ... Continue reading
Price Protection: Credit Cards That Will Refund a Price Drop

Price Protection: Credit Cards That Will Refund a Price Drop

Posted: February 8, 2018

Those who often find themselves buying stuff and then discovering that they could pay less for the same item they've just bought, will appreciate this credit card benefit – price protection. This is the least known and the most neglected ... Continue reading