Does a balance transfer hurt your credit score?

When dealing with high-interest debt, many people consider a balance transfer to save a bit of money and to pay off debt quickly. 

While promotional offers and 0% interest rates may seem tempting at first, are they all that they’re cracked up to be, or do they do more harm to your credit score than good?

Read on to learn more about balance transfers, the short and long-term effects they can have on your credit score, and how a credit-boosting phone contract can help reverse any damage done. 

What is a balance transfer?

A balance transfer is when you move an unpaid debt from one credit card to another (usually one with a lower interest rate). 

Most credit card companies run promotional offers where signing up for a credit card with them includes little to no interest on the transferred account. 

Many people do this with the aim of making it easier to pay off any existing debt but at a lower interest rate – often making the payments lower and quicker to pay off. 

Pros:

• Lower interest rates 

• Simplified debt repayments – moving multiple debts to one place makes things much easier to manage 

• Potential to pay off existing debt faster 

• Improved credit score – the quicker you pay off debt, the more improved your credit utilisation ratio will be  

Cons:

• Balance transfer fees 

• Limited promotional period 

• Potential impact on credit score – hard inquiries are needed to open a new credit card account 

• High post-promotional rates – once the promotional period ends, high interest rates on the remaining balance are common

Short-term impact of a balance transfer on a credit score 

Hard enquiry 

A hard enquiry is needed when you apply for a new credit account. This will cause a dip in your current score (usually around 5-10 points). 

Change in credit utilisation 

If the new card increases your available credit, your credit utilisation (the amount of credit used compared to total credit available) could improve. 

However, if the transferred credit uses a significant portion of your new limit, your ratio might stay the same or drop, negatively affecting your credit score. 

Average age of credit 

If you’ve been using credit for a long period, it improves not only your credit score but general creditworthiness too. 

Swapping to a new credit card account and opening up a new one can decrease your overall credit age, impacting your credit score slightly. 

Reduced debt on old credit cards 

Reducing the amount of debt on credit cards improves your score over time. While a slight dip after a hard credit search is expected, the long-term benefits (including improved credit utilisation and on-time payments) can outweigh the short-term impact. 

Long-term impact of a balance transfer on a credit score 

Improved credit utilisation 

Paying off debt without accumulating more improves your score over time. Aiming to keep your credit utilisation below 30% is the general rule of thumb to keep your credit utilisation at a healthy level. 

Improved payment history 

Making regular, on-time payments positively affects your overall payment history. This record will boost your score over time. 

Lower debt levels 

A balance transfer gives you the chance to pay off debt faster. This shows lenders you’re able to manage your finances responsibly, leading to a higher credit score. 

Avoiding new debt 

If you manage to pay off all debt and not accumulate more on the new credit card, your score will increase. However, if you do build up more debt, it could have the opposite effect, dragging your score down. 

What to do if your credit score has been damaged by a balance transfer 

If you’ve been tempted by promotional offers and found yourself in more debt and with a lower credit score than before, Boshhh Mobile is here to help. 

With us, you can get a contract phone with no credit check. Our SIM-only deals allow you to show lenders and credit reference agencies (CRAs) that you can manage your money, with monthly payments, while displaying your dedication to boosting your credit score. 

With flexible and affordable data packages, what are you waiting for?

Get started today and build a brighter financial future.