Do Balance Transfers Affect Your Credit Score?

Credit cards
Transferring your high-interest debt to take advantage of an introductory rate elsewhere can help you pay down debt faster but, in certain instances, that transfer can do more harm than good. We explore when does transferring balances hurt credit and what you could do instead to consolidate your debt.

How Can a Balance Transfer Help?

Balance transfers allow you to consolidate your debt into a lower-interest payment, which can help you to pay off your debt faster, improving your finances as well as your credit score. This can be a huge benefit to borrowers stuck with sky-high interest rates and monthly payments.

Transferring a balance has another added benefit that has nothing to do with interest rates: reducing your credit utilization ratio. For example, if you owe $2,000 on a card with a $4,000 limit, you have a 50-percent utilization ratio. If you were to transfer that debt to a new card with a $10,000 limit and a low-interest rate, you would not only get a lower payment but because you now have $14,000 available credit and only $2,000 in debt, your overall utilization ratio would drop to 14-percent. This would mean good news for your FICO score.

How Does Transferring Balances Hurt Credit?

While the above examples provide good reasons to consider a balance transfer, your credit score can be hurt during the application process. With each new account you open, the creditor will run a credit check. Each of those hits negatively impacts your credit score. And, because the average age of your accounts will drop when you open a new credit account, you could see your overall score drop even further. And, because your new creditor will charge a percentage of your balance as a transfer fee, debt consolidation through balance transfer can cost you more than it’s worth in the long run.

How Can You Avoid Damaging Your Credit?

If you’d rather avoid damaging your credit or you fear you won’t be able to qualify for a balance transfer rate that can save you money, contact us or visit an Xpress Cash branch in Michigan, Idaho, or Wisconsin. Our finance experts will be happy to compare balance transfers vs. cash advances with you before showing you how you can consolidate debt with our convenient loan products, even if you have less than perfect credit.