A reader named Laura e-mailed me this week with a question about balance transfer offers and credit scores:
Does “jumping from card to card” with balance transfers hurt your credit?
A Quick Recap of Balance Transfer Credit Cards
It’s a great question. But before getting to the answer, let’s put the question into context. Cards with a balance transfer feature allow you to move high interest credit card balances over to the balance transfer card with a much lower interest rate. Most, but not all, balance transfer offers charge no interest for a period of time. The longest 0% offer currently available comes from the Citi Simplicity card.
So where does the “jumping from card to card” come into play? Because 0% offers don’t last forever, many people transfer their credit card balance onto a new balance transfer card when the first offer is about to expire. That’s exactly what we did until our credit card debt was paid off a few years ago. The result, however, was that we had applied for and obtained about 5 different credit cards over a few years as we transferred the balance from card to card.
Multiple BT Cards and Credit Scores
And that brings us back to Laura’s question. We’ve already looked at how a single balance transfer card can affect your credit score. When you use multiple offers over an extended period of time, in my opinion, your credit score will go down in the short term. But in the long term, all other things being equal, your score may actually improve. Here’s why.
When you get any credit card, the card company pulls your credit report to evaluate your credit history. This inquiry can lower your score. The amount it lowers it depends on a number of factors, including what your score was to start with and how many inquiries you’ve had recently. Generally speaking, however, a single inquiry won’t have a major impact on your score. Of course, if you are about to apply for a mortgage, every point counts. In that case, I wouldn’t be applying for any new credit until I closed on the home purchase.
In the case of balance transfers, your credit score can take a second hit. It’s common for folks to use the balance transfer feature up to the available credit on the new card. Anytime you max out a card, whether by transferring another balance or with purchases, your credit score will take a hit. Again, the amount of the hit depends on a number of facts, but expect your score to go done. But that’s in the short term.
If you apply for another transfer offer in say 18 months, the effects of applying for your first card probably have little effect on your current score. When you transfer the balance over to the new card, you now have more available credit (the credit limit on the first card plus the limit on the second). Assuming you have a zero balance on your first card (after transferring the balance to card number two), the percentage of available, unused credit goes up. This can have a very positive affect on your credit score.
In our case, we now have about 5 cards with tens of thousands of dollars of available credit and no balances. As a result, the amount of available credit is high, which has a positive impact on our credit scores.
If you’d like a more scientific approach to this question, check out GoFreeCredit. You can sign up for a free trial of its credit monitoring service, which includes a tool that predicts how certain financial moves (like getting a new credit card) may affect your credit score.