The credit score is probably one of the biggest concerns for us, the consumers. No matter whatever credit activity we initiate, we always want to make sure that our credit score remains intact!
Undoubtedly, credit score is the single most driving factor in deciding whether or not we qualify for good loan terms! That’s the reason why clearing debt becomes important, as doing so will help you to achieve better credit score, and in return, a chance for you to get hold of better loan standards in the future!
Our central question for this post is a little different. Often times, people take up credit cards and are later not able to pay off the due balances.
Because of this, many go for a balance transfer method, where they try to bring all their existing credit cards’ balances into one single card!
Once, all the existing debts get accumulated in a single card, and the debtor now has only this card to deal with!
Pretty good to hear that! But just like every other magical thing in this universe, balance transfer also has its dark side! The side most of us generally overlook while in a hurry is to pay off our debts!
What is the dark side of balance transfer method and how does it affect your credit score?
In most of the cases that I have seen, especially from my experience with clients, people unknowingly hurt their credit score using balance transfer!
Usually, as soon as they transfer their balance to one card, they close the previous credit card accounts! Now, that’s what I really believe to be a grave mistake!
| No matter how many credit card accounts with zero balance you have open, closing all of them instantaneously, will bring your credit history to a halt, and will negatively impact your credit score! |
Sometimes you can even expect a drop of more than 200 points or so if you close multiple accounts at the same time!
Plus you already have that hard inquiry done by a bank for the new balance transfer credit card to add up to your score drop!
Summing up few negative factors that can hurt your credit score:
- Once you take out your new balance transfer credit card, the bank does a hard inquiry, which practically speaking, does impact your credit score!
If your credit score is already poor due to existing debts, then this hard inquiry can be a real sabotage to your credit score!
- If you close your previous credit card accounts randomly, then your credit history suddenly gets scrapped, and it will definitely hurt your overall credit portfolio! Once this diminished credit history starts to appear in your credit report, it will also start to get reflected by your poor credit score!
- If you take out a card for balance transfer that does not have a good credit limit, then your credit utilization ratio will fall abruptly, which can bring tears to your eyes!
Nevertheless, one usually takes up a card with a high credit limit for balance transfer. But without proper estimation and calculation, paying off debts via balance transfer might turn out to be a menace!
But what’s the bright side of a balance transfer and its positive effect on credit score?
Obviously, if something has a dark side, it also has a bright side. The balance transfer is a sure shot success for people who are adamant and energetic in clearing their debts!
Handling only one credit card is much easier than 3 or 5 cards, no matter whatever the amount is!
So, if you can take out a card, for the balance transfer, that has a pretty high credit limit, has the capacity to shed all your existing balances, and on top of that offers a 0% APR introductory period, then you are in command, man!
A high credit limit means a good chance to lower down your utilization ratio. Once the ratio is lowered, your score will shoot up, as this ratio makes up nearly 30% of credit score!
Also, show your creditors that you have cleared the balances on the respective cards, by keeping the accounts open for a significant number of months! Keeping those cleared accounts open will boost your credit history, and you might actually end up seeing an overall increase in your credit score!
So, it’s completely up to you now, if you want to go for a balance transfer. But, whatever you do, don’t make blind aims, and be sensible in utilizing your credits, if you really want a good score!