Do Balance Transfers Affect Your Credit Score?

Yes, they can affect your credit score, but not always in a negative way. You might see a small, temporary dip at first, but over time a balance transfer can help lower your credit utilisation and support better repayment habits.

We’ve written an article to help you understand how much of your credit limit you should aim to use.

Making your repayments on time is an important factor in building your credit score – but it’s not the only one. How you use your credit overall, including things like balance transfers, plays a part.

What is a balance transfer?

A balance transfer is simply moving existing credit card debt to another card, usually with a lower or 0% interest rate. You can find options for this on comparison websites and even from your online bank.

Essentially, the aim is to reduce interest, which, if you're only meeting the minimum payments, means you're never making even a dent in your outstanding debt and paying it off faster.

Options usually include a promotional period which offers 0% interest for 12-24 months, but it does usually come with a balance transfer fee of 1-3% of the total amount you're trying to transfer.

But, in the long run, over 12-24 months, where you're only paying off your outstanding specified balance transfer credit card debt and not suffering with interest charges, you will have enough time to actually make a dent in your overall balance.

For reference, the average credit card APR in the UK is 36.36% (Finder.com), so it's easy to see why it can be a challenge to clear it unless you're paying more than the minimum amount.

In the UK, balance transfers are offered by banks and credit card providers as a debt management tool.

You can learn more about what APR is with our guide.

How balance transfers work in the UK

Balance transfers are usually straightforward. You apply for a new credit card, specifically following a balance transfer offer, and select an existing one with an outstanding balance.

Now, the potential ‘yes’ to the question of ‘Do balance transfers affect credit score?’ comes into play here, because lenders will perform a hard search of your credit report, meaning a full exploration into your entire credit history, before they approve your balance transfer. Learn more about what a credit score is and how to check yours with our guide.

You're essentially taking out a new credit card, so, naturally, lenders want to know how likely you are to pay back the money.

If approved, the new provider pays off your old credit card balance, and the debt transfers to a new card with new repayment terms. But that 0% interest for at least 12 months, or better, 24 months, means you can actually start paying off your debt.

Minimum monthly payments are still required and will likely be similar to your previous credit card monthly payments.

It's also important to note that missing monthly payments can cause the lender to cancel your promotional rates, and then you're back to square one.

But don’t worry – FCA-regulated lenders are required to be transparent with their fees and terms.

Do balance transfers affect your credit score?

Yes, balance transfers can affect your credit score. But it should only be a slight dip from the hard search. Making your minimum monthly payments on time will then help your score head in the right direction.

Your credit utilisation is a percentage of the total amount of available credit that you're using. So if you have three credit cards equalling £4,000 and you've used £3,600, you're at 90% of your credit utilisation.

Using a lot of your available credit could negatively impact your score. This is because lenders could perceive high credit utilisation as a sign you’re reliant on credit – so, you could struggle to pay back any additional debt.

It's worth noting that opening a new account reduces average credit age, and that can also have an impact on your credit score.

Closing old accounts can also reduce available credit and negatively impact utilisation. It can make it look like you're using more because technically you are, even if you've paid some off, but haven't paid anything else towards your other outstanding credit debt.

Short-term vs long-term effects on a credit score

The potential short-term effects are:

• Temporary dip in your credit score after the hard search.

• A new account lowers the average credit history length.

The long-term effects can be positive if:

• You reduce overall debt.

• Monitor your credit utilisation.

• Make consistent, on-time payments.

The long-term effect can also be negative if:

• You miss payments or exceed limits.

When a balance transfer could improve your credit score

A balance transfer could help improve your credit health, especially as it reduces high-interest rates. For example, you could go from making a minimum required payment of £40 but having £48 interest charged each month to consistently paying £40 per month for up to 24 months.

To learn more, read our guide on minimum payments.

If you did get approved for a 24-month interest-free period and paid £40 every month without fail, you'd knock off £960.

According to the Money Charity, paying only the minimum payment with the average interest rates banks charge on a credit card in the UK could take 26 years and 10 months to pay off.

Another option is debt consolidation, which is a balance transfer of multiple debts into one manageable payment with the same 0% interest fee charges for a set number of months. This could help if you're struggling with multiple debts, but again, it can temporarily bring your credit score down due to a hard search.

The aim, whether you transfer one or multiple debts, should be to clear the balance before the 0% period ends.

So, do balance transfers affect credit scores? Yes, they can, but it depends on how you manage them. Find a great offer, there could be a temporary credit score dip, but never miss a payment to make sure there’s a positive influence over time.

Know your file

Understanding your credit health is key to improving your credit score and hitting your financial goals. With Checkmyfile, you get the most detailed credit report out there, with your info from Experian, Equifax, and TransUnion in one place. See where you stand today.