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You may regularly see credit card balance transfer offers, but are these a good idea? Can a balance transfer hurt your credit score? Here is a look at how balance transfers work, how they can help or hurt your credit rating, and whether a balance transfer is a good idea.
How New Credit Cards Affect Your Credit Rating
When considering a balance transfer that’s a new card, you should know that opening a new account can both help and hurt your credit score. To apply for a new line of credit to use for a balance transfer, the card issuer will pull a hard credit inquiry to make sure you meet their specifications.
A “hard pull”, as it’s called, will lower your credit score a bit but, over time, its impact will matter less and less. However, if you are considering several offers and apply to more than one card, several hard pulls can drop your credit score from the impact of the inquiries alone.
Occasional New Accounts Can Boost Your Score
Opening new accounts every now and then can help your score but opening too many at once can lower your score. It’s a balancing act. Plus, 15% of your credit score is your average age of credit. Opening new accounts lowers your average age and that can drop your score.
Because a new account lowers your average age, staggering how often you open new accounts is wise. This is why you also shouldn’t close your old account even after you transfer the balance to a new card. Keeping older accounts open helps this aspect of your credit score stay strong.
Increasing Total Credit Lines Can Improve Your Score
Another facet of your credit score is utilization. This is the amount of your total credit lines you’re using. Opening a new account for a balance transfer can be quite helpful in this regard. If you have a $4,000 balance and have total credit lines of $10,000, you’re using 40% which is far too high.
Opening a new credit card with $10,000 available credit and transferring the $4,000 balance will lower your utilization to 25% because the $4,000 is now based on a total credit line of $20,000. The lower your utilization, the better and if opening a new line can help, it could be a workable strategy.
Consider the Introductory Period Before Transferring
Most balance transfer offers come with a competitively low interest rate but only for a certain period. If you apply for an offer with 0% interest that lasts for 12 months, that sounds good but what happens if you can’t pay off the balance within that period? Is the post-promotion interest rate unreasonable?
Whether a balance transfer offer is right for you depends on your income, credit score, the specifics of the offer, how large the balance to be transferred, the current interest on the debt and interest rate offered, and other factors. There is no set answer and balance transfer isn’t right for all people.
The Hazards of a Balance Transfer
In addition to the potential impact on your credit score, another thing to consider with a balance transfer is what you will do after the balance is transferred. Opening a new line of credit can be good for your credit score, but only if you don’t use the additional credit to get yourself deeper into debt.
Carrying card balances can start financial ruin if your debt, spending, or expenses are out of control. The best for your credit score is to keep your utilization as low as possible. If a balance transfer helps you clear the debt for good, it can be a good idea, but if it digs you deeper, then it’s not wise.
To find out more about improving your credit score after bankruptcy, contact Credit Score Keys today. Call 919-495-2365 today for a free consultation.