Credit Card FAQ
How Transferring Credit Card Balances Can Affect Your Credit Score?
Many people are learning to play the game of keeping the lowest interest rate on credit cards, but are wondering, "Does transferring credit card balances affect your credit score?" Often, people can find new cards to which they can transfer old balances and receive a lower rate. But, they don't want to ruin their credit for the sake of paying the lowest interest rate.
We've all received the letter telling us to transfer our current balance from another card to this shiny new one to receive a lower rate. They even offer an exceptional deal specifically for transferring balances. But, many people are afraid to take advantage of this deal because they want to know, does transferring credit card balances affect your credit score?
Well, Does It?
Like everything else in the credit industry, the answer is not a straight forward one. It is actually yes and no. However, the ways in which it affects you are minimal, depending on how often you do it. And the good certainly outweighs the bad; your score will not be affected drastically, but the amount you're paying in interest could go down drastically, so take the good with the bad. There will not be anything negative portrayed under that payment, the only thing impacted will be your credit score. You are not doing anything at all to result in a derogatory mark, so you needn't worry about anything like that showing up.
How Is My Score Affected?
There is a bit of a science involved in determining a credit score. And nobody really knows what all goes into it and exactly how the major credit reporting agencies come up with your score. Perhaps the best answer to the question, "Does transferring credit card balances affect your credit score?" is yes, everything affects your credit score in one way or another. There are a few basic guidelines you can be aware of that might help explain slight changes in your credit score.
The first way transferring a balance can affect your score is from the credit inquiry. An inquiry means you asked a credit agency to extend credit to you. The inquiry is placed on your credit report and factored into the algorithm that determines your score. Other creditors can see the inquiry and will know you're shopping around. The reason the inquiry is placed on your report is for creditors to know if you are desperate for cash. Sometimes people will open several new credit cards at one time because they are aware of circumstances coming that mean they will not have enough money. Creditors will not want to extend credit to you in this case, but it's easy to prove that is not what you are doing because you won't be opening up many accounts, you're just rate shopping. You are allowed a certain number of credit inquiries over a 6 month period before they begin to affect your rate.
The other issue where transferring credit card balances can affect your credit score is going to be what you do with your old account. Closing a well established account can sometimes have a slight negative impact on your credit report. However, having too many open accounts definitely has a negative impact on your credit score. It's best to go ahead and close the old account and know you're score is going to go back up as the new account becomes more established (assuming the score was even affected at all).
The impact mentioned on your score is very minor. It's better to get the interest rate you want than to worry overmuch about what the change in your score will do. A few points here or there will not make a difference. If you're concerned about all the activity, have a copy of your credit report sent to you every 6 months. Be sure your score will be included in the report. This will help you to really know how much transferring credit card balances can affect your credit score.
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