Does Paying a Credit Card With Another Credit Affect Your Credit Score?

Intuitive logic says that you probably can avoid paying credit card debt and prevent damage to your credit by shifting balances between different credit card accounts -- most people call this a balance transfer. While you can do this for a while, it could eventually damage your credit rating. Used wisely, a balance transfer helps you pay down debt faster than if you kept the balance on the original account.

Finance Charges

Most credit card companies charge a fee -- often 3 or 4 percent of the balance -- to transfer a balance. Also, the new card could have a higher interest rate than the old card. The fee and higher rate increase your balance at a faster rate. The amount you owe creditors counts for 30 percent of your FICO rating, so you want to limit outstanding debt. Keep performing balance transfers every month without tackling the balance and your outstanding debt will only grow.

Credit Utilization

How much of your credit limit you use -- credit utilization ratio -- can drain your FICO rating of 45 or more points, according to Ellen Cannon of Bankrate. Transferring a balance to an account with a lower limit drives up the utilization ratio on that card. For example, if card 1 has a $1,000 balance and a $10,000 limit, it has a utilization ratio of 10 percent. Transfer that to card 2, which has a $2,000 limit, and the account has a utilization ratio of 50 percent. On the other hand, you improve your credit utilization ratio by transferring a balance on a low-limit card to a high-limit account.

Opening a New Card

If you open a new card, you cause additional damage to your credit rating because you lower the average age of your accounts. The length of your credit history counts for 15 percent of a credit rating. Also, the inquiry related to the new account causes up to five points of damage and can make other negatives on your credit history look worse.

Maximizing Balance Transfers

In general, you should perform a balance transfer only when it is part of a larger plan to pay off your credit card debt. Look for credit card offers with a 0 percent balance transfer offer. These often last for 18 to 24 months. The reprieve from finance charges allows you enough time to pay off the balance. Once you pay off the debt, don't close accounts, because you lose the limit on the card for your credit utilization calculation and, if it is your oldest account, you lose points in the length of credit history category.