As long as you keep your credit utilization low and keep your payments on time, these more meaningful factors might offset any potential credit score drop that a decline in your age of credit might cause.
Keep in mind, however, that your length of credit history is less influential over your credit score than other factors (like payment history and credit utilization). So, the addition of a new credit card to your credit report might trigger a small credit score drop. Older accounts are ideal where your credit score is concerned. The average age of all of the accounts on your credit report.The age of your newest account on your credit report.The age of your oldest account on your credit report.Some of the factors that play a role here include: With FICO scoring models, length of credit history determines 15% of your credit score.
Your length of credit history is another credit report category that makes up your credit score. But as long as you don’t overdo it, you don’t have to be afraid of applying for financing, like balance transfer credit cards, when it can benefit you. You want to be selective about when you apply for new credit. After 12 months, hard inquiries no longer influence your credit score.Not every hard inquiry triggers a credit score drop.Credit inquiries are one factor that affects only 10% of your credit score.So, when you’re deciding whether or not to apply for a new balance transfer credit card, keep the following details in mind. In the long term, credit inquiries tend to be far less significant than the other information on your credit report. A credit inquiry means someone has accessed your credit, and a “hard” inquiry has the potential to damage your credit score. When a lender checks your credit report, something known as a hard credit inquiry takes place. If you apply for a new credit card with a balance transfer offer, the application itself might have a slight negative impact on your credit score. However, there are certain situations where a balance transfer might lead to a lower credit score instead of a higher one. If you use a balance transfer responsibly, it can be good for your credit score.
How Can a Balance Transfer Hurt Your Credit Score? When this happens, there’s a chance your credit score might improve as a result. Transferring balances from multiple credit cards or loans and combining them onto a single account reduces the number of accounts with balances on your credit report. From a credit scoring perspective, it’s better to have fewer accounts with balances than too many. Fewer Accounts With BalancesĪnother factor that influences your credit score is how many accounts with balances appear on your credit report. In this scenario, your credit score would have a good chance of improving thanks to your balance transfer. Plus, as you pay down your credit card balance, your credit utilization rate should drop even lower as long as you don’t take on new debt. In general, a 25% utilization rate is much better for your credit scores than 50% utilization. $5,000 (Total Credit Card Balances) ÷ $20,000 (Total Credit Card Limits) = 0.25 x 100 = 25% Credit Utilization Rate.
Thanks to your new credit card account and balance transfer, your overall credit utilization rate would drop to 25%. If you open a new credit card account and transfer balances from other credit cards to it, one of the side effects could be a lower credit utilization rate.įor example, let’s assume you have two credit cards with the following balances and limits: Your credit utilization rate-the relationship between your credit card limits and balances-is an important factor when it comes to your credit score. Below are two examples of how a balance transfer might lead to a higher credit score. But it could bring about some changes to the overall makeup of your credit report that may benefit you. How Can a Balance Transfer Improve Your Credit Score?Ī balance transfer won’t raise your credit score in and of itself. Also, since interest is either on pause or reduced with many balance transfers, you may be able to reduce or pay off your debt faster. When you take advantage of a 0% or low introductory APR balance transfer offer, you can potentially save quite a bit of money. A credit card issuer you already do business with might offer you a chance to transfer balances at a special, limited-time rate. For example, a credit card company might offer balance transfers to new cardholders that feature 0% APR for 18 months. But you may be able to perform a balance transfer with a credit card you already hold.īalance transfer offers frequently feature lower annual percentage rates (APRs) for a limited time-sometimes for a year or longer. Many people open a new credit card and transfer balances to it. The term balance transfer describes the process of moving debt from existing credit cards or loans to an alternative credit card account.
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