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How Does a Large Balance Transfer Affect My Credit Score? - Credit Card Insider - YouTube

Channel: Credit Card Insider

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Hi. My name is John Ulzheimer, and I'm a credit expert

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who contributes to CreditCardInsider.com. Today's question is

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this...

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How does a large balance transfer affect my credit score?

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That's a very good question. Balance transfer offers are very aggressive these days. In fact,

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many credit card issuers are offering

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cards for balance transfer purposes

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with 0% interest on the transferred

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end balance. And also 0% interest on new charges for somewhere

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between 6 months to

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up to a year and a half in some scenarios. And some of them, believe it or not, are actually

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allowing you to transfer a balance in

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out without paying a balance transfer fee. So the offers are very aggressive

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and they're actually very good for consumers who want to

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stop paying for some small period of time so that they can aggressively

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pay off the balance on the card. And then they have don't have to worry about

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interest anymore because there is no balance.

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But one of the concerns you should be worried about, or the issues you should be concerned with

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at the very least

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is... What is the impact on my credit score for doing something like this?

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And there's a lot of moving parts to the answer, so let's go through some of them.

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First off, when you make the application for the card

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that you're going to use as the balance transfer recipient, you better have good credit

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because

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credit card issuers are not issuing those types of cards with 0%

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interest deals,

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and very high credit limits for people who have poor credit. So you better

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have good credit scores in order to even get those cards to begin with.

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Second, when you apply for a new card

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the credit card issuer is going to pull one of your credit reports,

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just one of them. And you don't know which one their going to pull.

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Pulling your credit report is going to leave a credit inquiry on that particular credit report.

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And while credit inquiries are the least most important

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variable in your credit score, it's a fact that they can lower scores.

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So that's something you should be concerned with. When you open the card

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the actual card account is going to show up,

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very likely, on all 3 of your credit reports.

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When that happens, it's going to lower the average age

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of the accounts on your credit report, because you just added a brand new account. So it's going to pull the average

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down.

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That can affect your score as well. In fact, relative to inquiries,

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it's worth 150% the value of inquiries.

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And people love to obsess about inquiries. So that's something to keep in mind as well.

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That's going to affect all 3 of your credit scores,

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because the account is likely going to show up all 3 of your credit reports.

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Now let's talk about what the affect of the debt is going to be.

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This actually is a positive believe it or not. If you have multiple credit cards,

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all with balances, and you open a new card, and then you transfer all those balances

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onto the new card, what you have just effectively done is you've eliminated

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multiple accounts with balances. And now you're just left with

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one card with a balance. You should see your credit score

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improve simply by doing that, because credit scoring models penalize you

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for having too many accounts with balances. Obviously reducing that number

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to the one card is going to be very helpful. Another thing that you've also done that

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you may not even realize,

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is that you've just lowered what's referred to as your revolving utilization or your

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debt to limit ratio.

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When you had all these balances on multiple cards you had some

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relationship between the balances and limits on those cards.

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Let's just say hypothetically it was 75% which is very very bad.

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When you opened the new card that new card has

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some amount of unused credit limit. So that lowered

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the ratio of balance to limit. And your score likely went up

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when you did that. Now just because you've transferred all those balances in

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it doesn't mean that you're utilization percentage goes up. It actually stays

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the same

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because you still have the same amount of credit limits on the existing cards,

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and the same amount of credit limit on the newly opened card, and the same

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amount

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of balances across all the cards. So your ratio stays the same.

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So from a net score impact perspective, that's actually going to be positive.

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Now, don't make this mistake.

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Don't go and close all of these cards that you pulled the

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balances from, because if you do close those cards

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your debt to limit ratio is actually gonna go up. And it could go up considerably,

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and then your scores gonna drop, which is a bad thing. So leave those cards open.

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Don't use them because you don't want to get back into debt twice over, because

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it's unlikely you're gonna be able to open

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another balance transfer card to be able to deal with those.

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So use them responsibly. Use the balance transfer card to pay off your balances as

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quickly as possible.

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Then you never have to worry about interest rates ever again. If you have any

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