Effect of Balance Transfers on Credit History

Your credit history is quite comprehensive. Three national credit bureaus called TransUnion, Experian and Equifax maintain databases with information on your credit-related activities, including credit card use. Various actions, such as purchases, payments and even balance transfers, affect your credit history and the way in which lenders view you.

Definition

A balance transfer is an action in which you move the amount you owe from one credit card account to another. You can transfer the entire amount or just part of it, according to the My FICO credit score website. The credit card company to which you transfer the balance usually charges a fee, although some run free transfer specials. The average fee is 3 percent of the transferred amount. The original credit card account remains open, even if you transfer the entire balance, unless you close it.

Effects

All of your credit card accounts and balances appear on your credit reports, the Federal Reserve Bank of San Francisco site explains, and the information is regularly updated. The balances change once your transfer is complete, showing the new decreased amount on the original account and the increased balance on the card to which you made the transfer. This does not change your overall debt, but it may affect your credit score if you opened the transfer card recently. The My FICO site explains that credit application inquiries may shave up to 5 points from your score. Your score can also drop if you close the original account because lenders favor long-term accounts over new ones when evaluating your history.

Considerations

Your balance transfer may help you raise your credit score if your debt load is high. You save money on interest when you transfer the balance to a card with a lower interest rate. The Motley Fool financial website recommends paying more than the minimum amount due, which drops the balance faster, and the lower rate allows more of each payment to knock down the principal amount.

Alternative

You can sometimes get the same money-saving and credit history benefits without transferring your balance from a high-interest credit card account. Lisa Lazarony, a writer for the Bankrate website, recommends calling the card issuers for your high-interest accounts and requesting a rate reduction. Your position is strengthened if you have an excellent long-term payment history. Call back in two to three months and ask again if the company says "no" to your first reduction request.