How Balance Transfers Can Hurt Your Credit Score?

If you are struggling with paying off high credit card balances, a balance transfer can help. But, if you do not handle it responsibly, it can negatively impact your credit score. Any Minnesota bank and trust can track credit-related factors to prepare your credit report.

Credit scoring companies like FICO use factors like payment history, credit utilization, length of credit history, credit mix, and new credit details to determine your creditworthiness and assign you a three-digit credit score. Transferring your balance to a new credit card does not affect your credit score, but what action you take after it impacts it drastically.

Take a look at how balance transfers can hurt your credit score and hamper your relations with a Stillwater bank and trust in the future.

Here are three ways balance transfers can hurt your credit score

#1     A hard inquiry on your credit

Whenever you apply for new credit from a bank in Stillwater, they conduct a hard credit inquiry on your credit report. Each of these inquires can lower your credit score by few points (less than 10). If you already have high credit balances and are stuck between 'fair credit' and a 'good credit,' a hard credit inquiry can restrict you from reaching the next level.

#2     Rising credit utilization ratio

The credit utilization ratio represents your current debt versus your available credit from a bank in Stillwater. According to FICO, you must keep your credit utilization ratio between 10 and 30 percent of your available credit. For example, if you have $10,000 in available credit, you must keep your total credit card balances below $3,000.

Now, if you take a new balance transfer card, you give yourself a new line of available credit, but if you close your old credit cards after transferring the balances, you hurt your credit score. The smart move would be to leave your old credit cards open and not to add any new debt to them.

#3     Shortening your credit history

Every Stillwater bank and trust expect you to maintain your credit history account successfully over a long period. Ideally, your length of credit history should be 15 percent of your FICO credit score. When you cancel your old credit cards after balance transfers, it impacts your credit history built up over the years. Ultimately, it hurts your credit score.

Conclusion

Balance transfers can hurt your credit score depending on how you use them. If you close your old credit card after transferring balances or use it to pay a bunch of new charges, your credit score can hurt.

Therefore always check your credit score before doing balance transfers and prepare plans to pay it off to improve your credit score over time. By understanding your credit report, using your balance transfer responsibly, and working toward a higher credit score, you can maintain positive relations with any Minnesota bank and trust.