How does a balance transfer affect your credit rating?

Learn how a balance transfer can affect your credit rating and what you can do to ensure it has a positive impact on your credit score.

When used correctly, balance transfer credit cards can help you repay your debt and improve your credit score. By consolidating your debt and reducing the number of credit cards you have listed on your credit report, your credit score can improve. As you pay off your debt you also have the option of reducing your credit limit, which can also have a positive impact on your credit score. And ultimately, paying off debt is going to put you in a better financial position.

Here we've unpacked how a balance transfer can affect your credit history and the easy steps you can follow to ensure it has a positive impact on your credit score.

Check your free credit score and credit report first

How can a balance transfer affect my credit rating?

Your credit report contains details of your entire credit history. This includes the type of credit you've been approved or rejected for, your repayment history, enquiries for credit, the age of your accounts and credit usage, each of which have an impact on your overall credit score. You can expect lenders to go through your credit report each time you apply for a new credit card.

Here are some of the ways a balance transfer could affect your credit rating:

• Status and number of applications. If you apply for a balance transfer and are rejected, this will have a negative impact on your account. Applying for several credit cards at the same time or within a short period of time will have a similar outcome on your file. New credit accounts constitute 10% of your credit history, so it's important to consider this when applying for a new card.
• Repayment history. If you are approved for a balance transfer but are unable to meet the regular minimum repayments and can't repay your balance by the end of the promotional period, thereby increasing your level of debt, this could have a negative impact on your credit score.
• Remaining accounts. You can keep your current credit card open after transferring your debt to the balance transfer card, but make sure to keep your repayments up to date on that card (if needed). Also, keep in mind that the credit limit of that card will also be affecting your credit score.
• Multiple transfers. If you're unable to repay your debt by the end of the promotional period and have to move the remaining amount to another balance transfer credit card, this can also look bad on your credit report.

How do I know if I have a good credit score?

Each credit bureau calculates credit scores differently. Here, we've broken down the credit scores for Experian and Equifax. Note that if you get your credit score for free with finder it will be delivered by Experian.

How to understand your Experian Score

How can I prevent my balance transfer from having a negative impact on my credit rating?

There are a few simple tips you should be mindful of to keep your credit file in good standing when conducting a balance transfer:

• Don’t apply too often. When applying for credit cards, try to spread your applications over six months or one year periods. Applying for new cards over a longer period of time will have a less of an impact on your credit file.
• Review terms and conditions. Go through the balance transfer offer terms and conditions at the onset. Account for all applicable fees, including any hidden charges, ongoing annual fees and calculate whether you can afford the card. You'll also need to confirm whether you meet all of the eligibility requirements, such as minimum income, eligible debts, credit score and residency, and that you have all of the required documents to ensure your application isn't rejected.
• Pay on time. Making a late payment can result in the termination of the promotional balance transfer offer, so do your best to repay your balance on time. By repaying the entire balance before the promotional period ends, you demonstrate your willingness and ability to repay outstanding debts, and you can expect lenders to view this with favour. Not repaying the entire balance before the promotional period ends would have you paying higher interest on any outstanding balance, and can also impact your ability to get a new card.
• Avoid new purchases. Avoid making purchases while you carry a balance transfer as this could increase your debt. Your repayments will automatically go towards whichever debt accrues a higher interest, which is more than likely going to be the purchase if a low or 0% balance transfer rate is in place. This means that you’ll be wasting funds you could be using to consolidate your debts to repay purchases. Again, your inability to repay your balance can have a negative impact on your credit score.

Frequently asked questions

• When should I inform my new card issuer that I want to transfer balances from other cards?

  If you're taking advantage of an introductory rate, most cards stipulate that you must complete the balance transfer at the time of application. Even if there is no introductory promotion, you should still request the transfer at the time of application, or soon after you find out about your new card’s approval to make use of the lower interest rate on your debt.

• How can I get a copy of my credit report?

  You can get your full credit report for free with finder – check yours for free here.

• Is there a limit to how much I can transfer through a balance transfer offer?

  This varies from one credit card issuer to the next. Most providers will allow you to transfer between 80% of your credit limit up to your maximum. Balance transfer offers usually also have a minimum transfer amount of between $200 - $500.