Why are balance transfers bad for your credit score?

Why Are Balance Transfers Bad for Your Credit Score?

A balance transfer is when you move funds or credit from one place to another. If you change cities or banks, you may transfer your entire account to a new location. More common is the balance transfer between one credit card and another. This is when you take some or all of outstanding balance on one card to another. While there are good reasons to move your balance at times, be aware that too many balance transfers can put an unpleasant dent in your credit score.

But why are balance transfers bad for your credit score? It all comes down to the reasons why that someone is transferring the funds. Sometimes, transferring a balance takes the form of using one credit card to pay off another one. This can lead to a financial situation where a person can’t ever fully pay off all their credit card debt. This situation can look risky to creditors, thus a drop in your credit score.

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In other situations, a person may open a new account and transfer a balance when they are planning on a big purchase. This can at times mean taking on more debt than a person can handle.

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When Should You Transfer Your Credit Card Balance?

There are, however, good reasons at times to transfer your credit card balance, and they can be worth the investment. If you are able to move your balance to a card with a significantly lower interest rate, that can offer significant financial savings in the long run, and would definitely be worth a temporary blip on your credit.

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Another good reason to move your balance to another credit card would be to get a higher limit. Not only is this useful in an emergency, but it looks good on your credit score to have more credit than you regularly need to use. Again, opening a new credit line may give you a temporary drop in credit (it should appear for about six months), but should pay off in the long run.