Balance transfer Q&A: “How a balance transfer appears on your credit report?”
If you choose to execute a balance transfer, make sure you understand that it will show up on your credit report. And that it could impact your credit history.
New Credit Card or Existing Credit Card?
But how it appears on your credit report will vary, based on the balance transfer offer you accept.
For example, if you open a new balance transfer credit card and move an existing balance to the new credit card, it’ll show up as a new revolving credit account with an outstanding balance.
Let’s take a look:
Existing credit card A: $5,000 balance @ 19.99% APR
New credit card offer B: $5,000 balance @ 0% APR for 12 months
Balance transfer fee: 3%
Balance transfer limit: $7,500
On your credit report, both credit card A and credit card B will show up on your credit report, though the $5,000 balance plus 3% balance transfer fee will be transferred from credit card A to card B.
Essentially, you’ll have roughly the same amount of outstanding credit on your credit report (plus the $150 fee), and an additional credit account open.
As a result, your credit score will probably take a light hit, though the magnitude of the ding will vary based on the rest of your credit history.
Tip: The more positive credit history you already have, the less the impact of the balance transfer, and vice versa.
Let’s look at another possible balance transfer scenario:
Existing credit card A: $5,000 balance @ 19.99% APR
Existing credit card C: $5,000 balance @ 0% APR for 12 months
Balance transfer fee: 5%
Balance transfer limit: $7,500
In this example, credit card C is one of your existing credit cards currently with a zero ($0) balance.
Credit card issuer C has offered you a 0% APR balance transfer for 12 months using the existing credit card.
The balance transfer fee is slightly higher, but you won’t have to open a new account, which could adversely affect your credit score.
If you took up their offer, the $5,000 balance (plus fee) would simply be transferred from one existing credit card to another, which should impact your credit score less.
On your credit report, the only difference would be a slightly higher outstanding amount of debt (the balance transfer fee).
Aside from that incidental change, you could be higher to your credit limit on the balance transfer credit card.
So say the original credit card had a credit limit of $10,000, and the balance transfer credit card has a limit of $7,500.
You’d be using about 75% of your available credit, as opposed to 50% previously. And the closer you are to your credit limits, the more risk you present, which could lower your credit score.
However, if you pay down the debt relatively quickly, your credit score should actually improve over time.
[How a balance transfer can improve your credit score.]
Some Takeaways
To sum it up, the presence of numerous new credit accounts on your credit report will weigh down your credit score, at least temporarily.
Conversely, a smaller number of older accounts in good standing will boost your credit score over time.
For that reason, it’s best to use balance transfers sparingly to avoid hurting your credit score or being rejected for future offers you may want to take advantage of.
But there’s no reason to subject yourself to costly finance charges just because you’re worried about the balance transfer showing up on your credit report.
In most cases, the impact is going to be fairly muted, we’re talking 5-10 points depending on the scenario.
The only time you really need to worry about that is before and during larger loan applications, such as mortgages or auto loans/leases you need to qualify for.
A balance transfer certainly isn’t regarded as a negative event, and ultimately, will only appear as a payment and possibly a new card account on your credit report.