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How Does Credit Card Balance Transfer Affect Your Credit Score?
Posted on Wednesday, June 19th, 2024 | By IndusInd Bank
If you are struggling to clear your credit card dues, you can consider the ‘balance transfer facility’. It is the process by which you can shift the pending balance from one credit card to another.
Balance transfers on credit cardscan help manage your credit card debt. However, knowing the effect they can have on your credit score is important. Let’s learn more about it.
Understanding Balance Transfers on Credit Cards
First, let’s understand what a credit card balance transfer is in detail.
- Balance transfer is a feature offered by credit card issuers where a cardholder can move their credit card debt to a new credit card account.
- Balance transfers are beneficial when the new credit account has a lower interest rate than the existing one. Usually, this may be a promotional interest rate valid for a particular time, such as 6 months or a year.
- By shifting existing debts, the cardholder can pay off their debts faster. It also helps to reduce the risk of missed payments. In addition, they may also incur a lower interest rate with the new account.
Not all banks offer balance transfers on credit cards. It is advisable to contact your bank and get clarity about this feature.
If you are planning for a balance transfer and are wondering, “Does a balance transfer affect my creditscore?” the answer is ‘Yes’.
The Negative Effects of Balance Transfer on Credit Scores
When you opt for a balance transfer, the credit score gets affected due to the following reasons:
1. You May Face an Inquiry on Your Credit Report
When you apply for a new credit card to carry out the balance transfer, banks initiate an inquiry on your credit report. With each inquiry, the credit score may decrease. If your credit score is not very good, these enquiries can further add to it.
2. Your Credit Utilisation Ratio May Increase
The credit utilisation ratio is the debt you are currently using divided by the total credit available to you. It is a crucial part of your credit score, which you must keep below 30%. After the balance transfer, if you use the freed credit limit from the new credit card, it may increase your credit utilisation ratio. It will negatively affect your credit score.
3. Your Credit History May Reduce
Your credit history gets shortened if you close the existing credit card after transferring the balance to a new one. The average age of your credit account will suffer a hit, impacting your credit score.
Now you know that balance transfers do hurt your credit score. However, they can also have positive effects on credit scores.
Also Read: People with a Low CIBIL Score Can Still Get a Credit Card – Here’s How
How to Improve Credit Scores with Balance Transfers
By utilising the balance transfer smartly, you can improve your credit scores.
1. Pay the Bills on Time
When you move your balances to a single card, it can be easier to track its payment. With a single due date in mind, you can avoid late payments. It can help maintain and improve your credit score.
2. Avoid Using Credit on the Other Cards
Opting for a new credit card can increase your credit limit. If you do not utilise this credit limit, it reduces your credit utilisation ratio. Thus, it leads to improvements in your credit score.
Conclusion
Understanding balance transfers on credit cards can help in effective debt management. But it’s essential to use it wisely. Also, choosing the right banking partner for your credit card is crucial.
IndusInd Bank offers a seamless digital banking experience and exclusive rewards, offers, and privileges. To make the most of these benefits, apply now for a new credit card with IndusInd Bank today.
Disclaimer:
The information provided in this article is generic and for informational purposes only. It is not a substitute for specific advice in your circumstances. Hence, you are advised to consult your financial advisor before making any financial decision. IndusInd Bank Limited (IBL) does not influence the views of the author in any way. IBL and the author shall not be responsible for any direct/indirect loss or liability incurred by the reader for making any financial decisions based on the contents and information.
