Does transferring credit card balances affect your credit score?

Will your credit score be affected by transferring credit card balances? Transferring your credit card balance from a card with a higher rate of interest to one with a lower rate may be a tempting option and might be a very smart financial maneuver.

Choosing a card with a lower annual interest rate will save you money. More of your payment is credited toward the principal, which means the debt can be paid down more quickly. Taking this step typically does have an effect on a cardholder’s credit score, however.

Read on to decide if the benefits of transferring your credit card balances to a new low interest credit card or new balance transfer credit card offer outweighs the potential short term negative effect on your credit score. Also, be sure and use our free balance transfer credit card calculator to see how much money a credit card balance transfer may end up saving you.

How Credit Scores Are Determined

A person’s credit score is determined by a number of factors, including his or her payment history, the amount of debt they have relative to their credit limits, and the age of the debt. Recent credit applications also factor into the mix. This means if someone is looking for additional credit, they should consider their options and apply for one card, as opposed to filling out multiple application forms to see which companies will agree to extend credit.

The amount of your credit limit compared with the amount you owe is factored into the mix as well. Keeping your credit card balance well below the limit will help to increase your credit score. The credit utilization portion of the calculation accounts for approximately 30% of the credit score.

The age of the debt counts for 15% of the overall score. New accounts are not treated in the same way as ones that have been open for some time. If a person transfers a balance to an existing credit card account, his or her credit is not affected, since they are merely moving the debt between accounts they already have. Opening a new credit card account will affect the individual’s credit card score, since it lowers the average age of the cardholder’s accounts.

Balance Transfers and Credit Score

When a cardholder applies for a new credit card with a lower annual percentage rate, the credit inquiry made on his or her credit record will lower the credit score, at least temporarily. Credit card applications made in the recent past make up approximately 10 percent of the overall credit score. Depending on the other factors at work, a recent inquiry onto a person’s credit record may result in five points being deducted from the number.

How to Find a Balance Transfer Card

A person who has considered the matter carefully and decided that transferring an existing balance to a credit card with a lower balance is the right choice for them needs to find the right card. The key to making a good decision about a balance transfer card is to consider a number of options before choosing a card and then to use our free balance transfer credit card calculator to crunch the numbers.

Credit companies offer different incentives to attract new customers. Some of them will offer a zero percent interest rate for balance transfers. Before applying for a card, it’s a good idea to find out whether the initial rate being offered applies to balance transfers only, or if it also applies to new purchases.

With some companies, the initial interest rate offered applies only to balance transfers, and it may only be in effect for a limited time. After six or 12 months, the entire account balance reverts to the company’s usual interest rate. If the number isn’t apparent in the application form or on the company web site, the prospective customer should contact the company to find out exactly how much interest they will be charged. That way, the customer is making an informed decision about whether it makes sense to transfer an existing balance to another card or not.

For some customers, finding a lower interest rate is only part of the equation. They are also interested in finding a card offering rewards. In some cases, the customer may need to make a choice between a card offering the types of rewards they find attractive and a slightly higher interest rate. Rewards offered by credit card companies range from air miles to points that may be redeemed toward hotel stays and merchandise. Other cards offer cash back or discounts on the price of gas. With the number of cards available, it can be a chore to wade through all the available options to find the right one.

Comparing rates and terms online is a quick and convenient way to find the right card, now that you know how transferring a credit card balance affects your credit rating. The credit card Chaser tool can give you the information you need. It’s free, and you can get started right away by visiting our home page. Get started finding the best credit card now!

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Disclaimer: This content is not provided or commissioned by American Express, Visa, MasterCard, Discover, or any other credit card company or issuer. The opinions expressed here are the author's alone, not those of any credit card company or issuer, and have not been reviewed, approved or otherwise endorsed by any credit card company or issuer. Credit Card Chaser may be compensated through various affiliate programs with advertisers. As always, Credit Card Chaser is an independent website commmitted to helping people research credit card offers and find the best credit card!