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Research: Does balance transfer affect credit score? - Credit-Land.com

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 banks or credit card issuer(s). Opinions expressed here are the author's alone, not those of the banks or credit card issuer(s), and have not been reviewed, approved or otherwise endorsed by the banks or credit card issuer(s). Reasonable efforts are made to present accurate info, however all info is presented without warranty. Consult with the issuing bank of the card or account for terms & conditions.
All rates and fees, and other terms and conditions of the products mentioned in this article/post are accurate as of the last update date but are subject to change. See the current products' Terms & Conditions on the issuing banks' websites.