Is a Balance Transfer Bad for My Credit?

When it comes to your credit scores, the amount of credit card debt you’re carrying can have a significant impact on your scores. With that in mind, how does transferring a credit card balance to another card affect your credit score? That’s the basis of this reader’s question:

I’m rebuilding my credit. Do I get evaluated differently if I transfer a balance to another credit card vs. paying the amount in full?

Kudos for focusing on building your credit, it’s a great step in the right direction. To clarify and answer your question, however, transferring credit card debts from one card to another won’t have any impact on your credit scores. For one, moving debt from one card to another doesn’t actually eliminate the debt. The debt still exists, and it’s still factored into your credit score calculation.

Will a Balance Transfer Boost Your Credit Score?

A significant factor in your credit score calculation is your revolving utilization, or how much of your available credit you’re using. When credit scoring models run their calculations, they look at each credit card individually, as well as all cards combined. Transferring a balance from one card to another may change the individual utilization on one card and transfer it to another, but on the whole, your score won’t change because your overall revolving utilization won’t change. The debt still exists — regardless of which credit card it’s being reported on. Of course, if you transfer a balance to a credit card with a lower interest rate, it can help you pay down your debt faster (in theory, since you’ll be paying less on interest), which will, in time, have a good effect on your credit scores.

On the other hand, however, if you’re opening a brand new credit card (rather than transferring a balance from one existing card to another), adding an additional credit limit to your overall credit utilization mix could lower your revolving utilization and help your credit scores. It all boils down to your revolving utilization. If you have good credit and can qualify for a new balance transfer 0% card offer, this can be a good option if you’re able to focus on paying the debt down during the promotional period.

In the end, if you’re having trouble qualifying for new credit and trying to raise your credit scores, it’s best to pay the debt down, or in full if you can, and then focus on using the cards by only charging what you can comfortably afford to pay off in full each month.

If you’re serious about rebuilding your credit, it’s important to know what’s going on with your credit. You’re entitled by law to get your credit report for free once a year from each of the three major credit reporting agencies — so you should take advantage of that. It’s also important to monitor your credit scores regularly to track your progress and watch for changes that could indicate a problem (like identity theft, an error on your credit report or an unpaid debt). There are free services that offer credit score monitoring — Credit.com offers such a service, which shows your credit score and a breakdown of the components of your credit score, telling you which area you need to work on so you can target your credit-building efforts.

This post was updated October 10, 2013 to address a reader question about transferring credit card debt to a new balance transfer credit card.

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