Balance transfer credit cards are everywhere, but before you sign on the dotted line, make sure you know what that balance transfer means for your FICO score.
In the short term, a balance transfer may temporarily decrease your FICO score, but overtime it can prove to be beneficial. When a consumer opens up a new credit card. Fifteen percent of your FICO score is determined by the length of your credit history, this comes into play when doing a balance transfer. If you transfer a balance from an old card to a new card, it can temporarily bring down your credit card score. As long as you continue to pay your bills on time, the effect on your credit score is minimal.
Your FICO score could be further affected when you apply for a credit card. Every time you apply for a credit card, the credit card issuer will check your FICO score to determine whether or not you are a low or high right consumer. This is labeled as a “hard inquiry” and these types of credit checks can decrease your credit score. A “hard inquiry” if conducted every four months or so has a minimal effect. Inquiries like this will only take off up to eight points off your credit score.
Balance transfer offers can affect your FICO score by altering your debt-to-credit ratio. This ratio makes up 30 percent of your credit score. And depending on how you use some balance transfer deals they can have a negative affect on your credit score. So if you take out a balance transfer credit card for a home project or for extra money and intend to pay the debt of gradually, then your debt-to-credit will jump up. But your credit limit will also increase. If you are getting a loan, and intend to use more than 30 percent of the spending limit then the loan will negatively impact your credit score until you completely pay off the loan.
But if you are dedicated to paying off your bills on time
, then a balance transfer can actually decrease your score by decreasing the amount of debt owed. This is only if you pay your bills on time, and make sure the debt on your zero balance transfer credit card is paid off before the introductory offer fades.
Paying off the balance left on the balance transfer, and not closing the card can also impact your FICO score. If you pay off the balance and you leave the card open, it can help your debt-to-credit ratio if the balances on your other credit cards are also in check. Refrain from charging extra expenses after you have paid off the balance you transferred, and it can really help your credit score. Don’t just move money with a balance transfer deal; make sure you commit to paying off your debt, as well as watching your FICO score.