First, what is a balance transfer? Credit card issuers want to increase their share of your wallet and will offer you low interest rates in exchange for you transferring the balance from another credit card to their credit card. This can be as an offer on a new credit card or for a card you have currently. Some credit card issuers are willing to go as low as 0% interest on the balance transferred. But, how do these impact your credit scores?
New card offer
If this is a new credit card offer and you move the balance from an older account to the new account, the impact is based upon two factors: 1. whether you close the old account and 2. the credit limit differences of the new versus old account. Your credit can be impacted by opening a new account, which means a new inquiry and a newly opened account pulling down the average age of your account history. If you choose to close the older account you will have reduced your overall credit limit by that amount of the limit on the closed card, but if the credit limit on your new account is the same, it’s a wash.
If this is a balance transfer from one credit card to another credit card and no new accounts are opened, it should have minimal impact on your credit. You have not changed the amount you owe or your credit limits and you have not added a new inquiry or a new account to your credit reports.
Balance transfers can save you a ton of money and buy you time to get out of credit card debt altogether. There is usually an introductory time frame in which you get a lower interest rate or a 0% interest rate. If the balance is not paid off within the specific time frame, a higher interest rate goes into effect. This rate could be higher than the interest rate you were paying on the former credit card. If you can pay off the balance before the rate increases, you will save money. If you can’t, you usually don’t come out ahead and pay more in the long term.
Credit Reporting Expert, John Ulzheimer, is the President of Consumer Education at SmartCredit.com, the credit blogger for Mint.com, founder of www.creditexpertwitness.com and a Contributor for the National Foundation for Credit Counseling. He is an expert on credit reporting, credit scoring and identity theft. Formerly of FICO, Equifax and Credit.com, John is the only recognized credit expert who actually comes from the credit industry. You can follow John on Twitter here.