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Is a balance transfer bad for your credit?

Your credit card debt has a huge impact on your credit scores. Does it make sense to move balances from one card to another?

By Money Staff Dec 17, 2013 2:48PM

This post comes from Deanna Templeton at partner site on MSN MoneyWhen it comes to your credit scores, the amount of credit card debt you're carrying can have a significant impact on your scores. With that in mind, how does transferring a credit card balance to another card affect your credit score? That’s the basis of this reader’s question:

 I’m rebuilding my credit. Do I get evaluated differently if I transfer a balance to another credit card vs. paying the amount in full?

Shopping online © Comstock, SuperStockKudos for focusing on building your credit, it’s a great step in the right direction. To clarify and answer your question, however, transferring credit card debts from one card to another won’t have any impact on your credit scores. For one, moving debt from one card to another doesn’t actually eliminate the debt. The debt still exists, and it’s still factored into your credit score calculation.


Will a balance transfer boost your credit score?

A significant factor in your credit score calculation is your revolving utilization, or how much of your available credit you’re using.


When credit scoring models run their calculations, they look at each credit card individually, as well as all cards combined. Transferring a balance from one card to another may change the individual utilization on one card and transfer it to another, but on the whole, your score won’t change because your overall revolving utilization won’t change. The debt still exists  -- regardless of which credit card it’s being reported on. Of course, if you transfer a balance to a credit card with a lower interest rate, it can help you pay down your debt faster (in theory, since you’ll be paying less on interest), which will, in time, have a good effect on your credit scores.


On the other hand, however, if you’re opening a brand new credit card (rather than transferring a balance from one existing card to another), adding an additional credit limit to your overall credit utilization mix could lower your revolving utilization and help your credit scores. It all boils down to your revolving utilization. If you have good credit and can qualify for a new balance transfer 0 percent card offer, this can be a good option if you’re able to focus on paying the debt down during the promotional period.


In the end, if you’re having trouble qualifying for new credit and trying to raise your credit scores, it’s best to pay the debt down, or in full if you can, and then focus on using the cards by only charging what you can comfortably afford to pay off in full each month.


If you’re serious about rebuilding your credit, it’s important to know what’s going on with your credit.  You’re entitled by law to get your credit report for free once a year from each of the three major credit reporting agencies — so you should take advantage of that.  It’s also important to monitor your credit scores regularly to track your progress and watch for changes that could indicate a problem (like identity theft, an error on your credit report or an unpaid debt).  There are free services that offer credit score monitoring — offers such a service, which shows your credit score and a breakdown of the components of your credit score, telling you which area you need to work on so you can target your credit-building efforts.


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Dec 29, 2013 12:12PM
Balance transfers are a smoke screen that really accomplishes nothing. Your still buying things you can't afford and borrowing to pay for them. The new credit card is luring you in with a teaser rate hoping you won't pay off the debt so they too can eventually reap the benefits of charging you higher interest rates. Quit borrowing, pay off your consumer debt, then only borrow what you can pay off  each month, that's the real answer.
Dec 29, 2013 10:47PM
If you have good credit and low debt why not for for the 0% deals.  It's free money (well almost after the transfer fee).  I'm not saying to go out and charge $15k on your credit card but charging a couple thousand for a larger purchase or vacation at 0% interest and then paying it off in 12 months sounds like a deal to me.
Dec 29, 2013 7:31PM
I paid off %15,000.00 in credit card debt during the 90's opening up 0% credit cards and transferring the balances until it was paid off in full; it took me 5 years to do it.  The trick was never to charge again and to focus on paying it off.  Nowadays, due to the fees it would not be worth it for the most part.  I was young and dumb and used to abuse credit cards; now if and when I use them I pay them off in full when the bill comes. 
Dec 29, 2013 8:07PM
We did this a few times 15 years ago and it worked out OK for a very short period and then since we had numerous cards and the limits kept going up we ended up using alot more credit than we should have. Too easy to get in serious debt and we did. We finally paid them all off but it took awhile and we learned an expensive lesson to live within our budget.  Nothing wrong with credit cards as long as they are paid in full when the bill comes.
Dec 29, 2013 10:18AM
there has never been a better time to be in debt. Now I understand that sounds a little odd, But interest rates have never been lower. They will rise as the economy improves, they always do. 0% car loans, 3.5% home loans. I remember the days under Ronald Reagan when Interest rates were 18% and higher. nobody in those days would have ever dreamed then, that the rates could ever get this low. You have to be smart enough to realize a good deal when you see it. Position your self now, when rates go up you will wish you had!
Dec 29, 2013 6:22PM
Used to be a good deal when a balance transfer could be done with no transfer fees or a 3% with a $25 maximum. 20 years ago those kind of offers would come in from  almost every card issuer so if you paid attention to the 6 or 12 month time frame, you were able to finance your debt at 0% and pay down the principal a lot quicker. Student loans were above 8% at that time and we financed my wife's tuition entirely interest free and it took us only 3 years to pay the cards off after she graduated. The secret was to have lots of cards and not to charge purchases on the cards you transferred the balances to, otherwise you get charged interest on those purchases and any payments made go toward the 0% balance first. The every day use credit card gets paid off every month and having many cards assured you that transfer offers would keep coming in the mail to replace those about to expire. It was an ingenious way to beat them at their own game. Eventually they got wise and changed the terms so many offers have no maximum  and anywhere from 3 to 5% fees that significantly raise the APR on the deal.
Dec 30, 2013 1:43AM
If you are using their money interest free it is a good idea. You can keep your money earning wherever it is (stocks, CD's although the rates are so low............) and utilize their funds, so long as you pay it off while it is still at 0% to avoid interest charges.
Dec 29, 2013 4:37PM

Carrying a balance is dumb.  Everything else is just picking your level of dumbness.

People who try to live beyond their means end up living beneath them. Every cent of interest paid is a cent that is not available to buy "stuff".

Dec 29, 2013 7:10PM

Transferring a balance works for me, especially if I get most of it paid down during the promotional period. I've done this for years with revolving credit, and those percentage points add up on a large balance. I was laid-off for a long time; every dollar I can save helps.

Dec 29, 2013 1:23PM
Balance transfers used to save you money, about 10+ years ago.  Many credit card companies offered transfers with no interest and sometimes no payments for up to 18 months.  Then they started charging the transfer fee, and basically eliminated the savings to be made.  In fact, now it might even cost you more to transfer it than leave it where its at, depending on the interest rates to and from.....
Dec 29, 2013 1:03PM
Credit cards bad, very bad.....  The first time that money isn't there you will find out how bad....
Dec 29, 2013 4:48PM
Dec 29, 2013 7:33AM
Credit scores were designed by financial institutions to make sure they charge you the highest possible interest rate they can. Cash is king! Gangsters never charged what banks and credit card companies do. Look at savings and checking interest, then compare that rate to a personal loan....
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