Do balance transfers affect credit ratings?

Balance transfers can be an effective way of lowering credit card debts, through lowering the interest charged on the balances. However, some people are concerned that their credit rating will be aversely affected by the balance transfer. This does not need to be the case.

There are two main types of balance transfers—those that take place between two or more existing credit cards, and those that move an existing balance to a new credit card. The balance transfer between existing credit cards will not affect a person’s credit rating, as they are not reported to the major credit scoring agencies. This is because credit ratings usually take account of the entire debt, rather than merely the level on each separate card.

The other type of balance transfer moves an existing balance to a new card. This can affect a credit rating, not because of the balance transfer, but because of the act of opening a new account. And even this does not actually affect the credit rating if it is done at a distance in time from other credit cards.

However, if multiple cards are applied for at the same time, that will affect the credit rating. Credit reporting agencies tend to see all those applications for credit cards and loans as a sign that the person may be approaching financial trouble, and so will often lower their credit score.

This can be a particular concern for people who are transferring balances to take advantage of short term introductory rates. A person who applies for an introductory zero per cent interest rate credit card may think it’s a good idea to apply for a second one once that introductory period is past, to continue discharging the balance without paying a high rate of interest. But this can damage the person’s credit rating, as it’s another instance of applying for a large number of cards in a short period of time.

The credit scoring agencies aren’t concerned with the purpose of a credit card, whether it is for a balance transfer or for spending. It’s their opinion of one’s possible motivations that count.