Does Merging Credit Cards Hurt Credit?

In an effort to simplify your life or take advantage of a lower interest rate, you may give into the temptation to combine your credit cards into a single account. Although this can possibly save you some money in interest, it also has the potential to negatively affect your credit score.

Balance Transfer

A balance transfer is a process that many credit card holders use to move their credit card balances from one card to another. With this process, you take the debt that is on one credit card and transfer it over to another credit card. This is often available when you initially open a credit card account. The new credit card provider will ask you if you want to transfer any balances over to your new card and it can be completed at that time.

Credit Utilization Ratio

When transferring balances from one credit card to another, you must consider the impact on your credit utilization ratio. The credit utilization ratio is a ratio that the credit bureaus look at to help come up with your credit score. It looks at the relationship between how much debt you have compared to the amount of available credit. If your debt load is close to the amount of available credit, it looks like your card is about to be maxed out and it reflects negatively on you.

Merging Credit Cards

When you merge your credit balances into a single credit card, it can throw off your credit utilization ratio. By combining several balances onto a single card, it makes it look like your credit utilization ratio is very high on that one card. For example, say you have five credit cards, each with $1,000 balances and $5,000 credit limits. In this situation, you have a 20 percent credit utilization ratio on each card. When you combine all of those cards into a single account, you now have one card with a $5,000 balance and credit limit. Your credit utilization ratio changes to 100 percent for that card, which shows up as a negative item on your credit.

Length of Credit History

Another way that this could impact you is by affecting the length of your credit history. One of the factors that credit bureaus look at is how long you have had accounts opened. If you close out your accounts after you transfer the balances, you may end up closing your oldest account. This shortens the amount of time that your credit history has been open and can negatively affect your credit score.