Does a balance transfer affect your credit score?

Discover the impact of balance transfers on your credit score, as we help you make the best decisions for building your credit score.

woman sat on sofa holding credit card and tablet

Written by Team Aqua

Published on August 28th, 2024

Last reviewed on August 28th, 2024

6 mins read

Credit cards

Before you transfer existing debt to another lender, you might be wondering whether a balance transfer affects your credit score.

When you apply for a balance transfer credit card, your lender will perform a hard credit check on your financial history. This will be recorded on your credit report and may reduce your credit score temporarily.

A balance transfer can help improve your credit score if you manage your new account well and repay your statement balance in full and on time each month. By transferring your existing credit card balance to a 0% or lower interest rate offer than your current credit card, you could save money on interest provided you pay your contractual minimum payments on time. This could help you pay off your balance quicker and may help improve your credit score over time.

Understanding balance transfers

A balance transfer is when you transfer your balance from one credit card to another, usually to take advantage of an interest-free period, low interest rate or to consolidate multiple balances onto a single card.

When you make a balance transfer to a card with a lower interest rate, you can save money on interest provided you pay your contractual minimum payment on time, which can really add up over the long term. Moving multiple balances to one card can also make it easier to manage your monthly repayments.

The amount you can transfer will vary from one lender to the next. With an Aqua card balance transfer, the minimum amount you can transfer is £100, and you can transfer up to 90% of your available credit limit (including the balance transfer fee).

Before you request a balance transfer, it’s a good idea to check the transfer fee, which will vary between lenders. If you’re looking to lower your interest rate, you should also compare your existing rate to what’s being offered by other lenders.

How credit scores work

A credit score is often expressed as a three-digit number (0-999) and is used to help lenders determine how creditworthy you are based on things like your payment history, the amount and types of existing credit you have and the length of your credit history.

Whether you’re applying for a loan, mortgage, or a credit card, your lender will use your credit score, amongst other factors, to check if you meet their lending criteria, so it’s important to keep your credit score healthy.

According to Experian, the average UK credit score is 797 out of 999, based on data from 2021. However, scores can vary depending on the credit reference agency.

Those with a higher credit score, such as 'good' or 'excellent', are more likely to be accepted for a balance transfer credit card and may also benefit from access to higher credit limits and preferential interest rates depending on their personal circumstances.

With a ‘fair’ credit score, you may still be offered a balance transfer credit card subject to your creditworthiness assessment, though it may have a lower credit limit and less preferential interest rate. Your credit limit may increase over time if you manage your account well and pay your contractual minimum payment on time.

Impact of a balance transfer on credit scores

When you apply for a balance transfer credit card, your lender will perform a hard credit check which will be recorded on your credit report. If too many hard checks are carried out over a short period of time, you could potentially lower your credit score and reduce your chances of getting approved for credit now or in the future. To protect your score, be selective and take the time to find the credit that’s right for you.

If you are approved, a balance transfer could also help you pay off your debt sooner and help improve your credit score over time if you manage your new account well. This is because a balance transfer often comes with a 0% or low interest rate, giving you the opportunity to pay less on interest and more towards paying off your debt enabling you to get back on track – provided you keep up with your credit repayments.

Strategies to minimize any impact of a balance transfer on your credit score

Before you request a balance transfer, it’s important to do your research and understand what factors could impact your credit score. Here are some strategies to point you in the right direction:

1. Don’t apply for multiple balance transfer credit cards at any one time

Applying for multiple balance transfer credit cards (or any other types of credit) in a short period of time can have a negative impact on your credit score as it suggests to lenders you might be struggling with your finances or rely too much on credit.

Instead, be selective about the card you choose and wait to see if you get approved.

If you’re struggling to get approved for one or more cards, it might be worth checking that your details are accurate on your credit report. It may also be that you need to build your credit score to increase your chances of acceptance. Learn more about ways to fix bad credit.

2. Repay your existing debt during the promotional period

In order to get the most benefit from a balance transfer, you should aim to reduce your credit card debt within the 0% or low interest promotional period. To stay on track, you could set up a direct debit to clear your balance before the promotional period ends. For example, if you have a debt of £3,000 and an interest-free rate for 12 months, you could set a target to repay £250 per month, which would enable you to clear your balance within the 12 month interest-free period as long as you don’t make any other purchases on the card within that time.

3. Should you keep your old accounts open after a balance transfer?

This is entirely up to you and may depend on how much available credit you have with us and other lenders.

Demonstrating that you have held a credit card for a longer period of time could have a positive impact on your credit score, provided you have paid the minimum contractual repayments on time. You therefore may wish to keep the account open if it is good standing. Remember however, to keep the card and the account safe and if you do spend on the card, be aware of what interest rate applies to any purchases and ensure you pay the minimum contractual repayments on time.

Sometimes, having too much available credit can have a negative impact on your credit score overall. You therefore may choose to close the account after you’ve paid off the balance transfer. This may cause a temporary dip in your credit score. This will typically improve in a few months, provided everything else on your credit file remains positive.

So, whether you decide to close it or keep it open it’s always best to take the approach that works for you.

Is a balance transfer right for you?

A balance transfer credit card can give you the opportunity to save money on interest, consolidate your debt and take control of your finances, provided the balance transfer card has a lower interest rate than your existing card and you pay your minimum contractual repayments on time.

To get the most out of a balance transfer, it’s important to pay off or reduce your balance as much as you can during the 0% or low interest period. If you carry a balance beyond this time – or spend more on your card and increase your debt – it could potentially lower your credit score if you increase your overall balance and don’t keep up with your repayments. So, if you’re thinking about taking out a balance transfer credit card, make sure you have a plan to pay down your balance over time and manage your account well.

Failure to make payments on time or to stay within your credit limit means that you will pay additional charges and may make obtaining credit in the future more expensive and difficult.

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