Credit Q&A: Will a Balance Transfer Help My Score?

Q: Can a balance transfers help my credit score?

A: Yes, but it can also lower your score if you don’t manage it correctly, according to John Ulzheimer, president of consumer education for SmartCredit.com.

As we have previously reported, balance transfers allow consumers to move high interest debt they carry on existing credit cards to a new card that charges little to no interest, at least for an introductory period.

The debt shuffle can boost an ailing credit score – especially if you move more than one balance over to the new card – since it reduces the number of open accounts with an outstanding balance, a metric that Ulzheimer says is factored into your overall score

It can also raise your score by positively influencing your credit utilization ratio – the amount of debt you currently carry versus how much credit you have available to you – as the new credit card you are transferring the balance to will add to how much credit you have at your disposal.

Just how big this increase may be depends on how much balance the new card allows you to transfer, which in turn depends on what your credit report looked like to begin with.

But, Ulzheimer cautions, the transfer will only benefit your score if you leave the old cards open and if you refrain from charging more on them.

“Don’t close the old cards,” he says, explaining that doing so would negatively impact your credit utilization ratio since you would then be using almost all of the credit you have on your remaining cards, and it would ultimately lower your score.

Closing the accounts could also lower the age of your credit report, which would cause your score to fall.  

Ulzheimer says you could take a ding for the inquiry that will show up on your report when you apply for the balance-transfer card, but it’s likely to be very small.

Generally speaking, when following these guidelines, Ulzheimer says, “the pros outweigh the cons.”

Want to know how other financial situations affect your credit score? Email your questions to us at editors@mainstreet.com.