balance transfer improve your credit

Updated: April 1, 2020 

Credit is important in many aspects of life, both financial and otherwise, and if you are dealing with less-than-perfect (or downright poor) credit, chances are you’ve been looking for new ways to improve it. We’ve talked about the fact that using credit cards responsibly is a good way to achieve and maintain good credit, but what happens when your balance grows higher than you can reasonably pay off in a month? If you’re carrying a balance, then you are more likely than not paying interest on that balance — and depending on your credit, that APR could be steep. Transferring your balance from one or more credit cards to a new card is not only a way to pay less interest over the long-term, but it can also help improve your credit. Keep reading to learn how.

Considerations before completing a balance transfer

The ideal balance transfer card

If you’re considering consolidating your debt, the ideal balance transfer credit card is one that offers:

  • A 14-month (or more) 0% intro balance transfer APR. Since the whole point is to transfer your balance as easily as possible, this is probably the most important aspect of a great balance transfer card. An average 0% intro period for balance transfers is 14 to 18 months, while some cards offer over 21-month periods. When you plan out your budget, make sure you can pay off your balance during the 0% intro APR period, so you’re not stuck paying interest at the end of the intro period.
  • A 5% or lower balance transfer feeWhen transferring your debt, you’ll need to pick your poison; is the one-time fee or the remaining interest you’ll pay on your current card cheaper? The former is usually the best option. Balance transfer fees usually cost 3% to 5% of the total, but you’ll want it as low as possible, naturally.
  • No annual fee. If you’re trying to pay off your debt, incurring a yearly fee for having your card open only adds fuel to the fire. Thankfully, the balance transfer cards we review do not charge annual fees.
  • Benefits, rewards and rates that complement your lifestyle. Depending on the nature of your debt, you may want to consider a card that you’ll keep for the long haul. Opening and closing your card about a year after a previous one may bite into your credit score more than you’d like or could undo any debt consolidation you just accomplished. Plus, a card that has ongoing value to you may be an asset as another open line of credit.

Questions to ask before transferring your balance

  • Will the 0% intro balance transfer APR period be long enough to pay off your balance? Make sure you budget carefully, because you’ll begin accumulating interest again if you don’t pay off your balance before your 0% intro APR period is up — and that uphill battle will start again.
  • What is my FICO credit score? Balance transfer cards are generally available to those with good to excellent credit (usually a FICO score of 700 at least). If your credit is lower, your balance transfer could be denied. We do review a few cards that are available to those with average to excellent credit (a score of 670 or higher), like the or cards.
  • Should I close my old card? Maybe not, but it depends on a few factors. If your previous card was your first, then you wouldn’t cancel your old card in order to lengthen your average credit history. Otherwise, you could limit your available credit. However, if your previous card has an annual fee, canceling makes sense. Keep in mind that closed accounts will appear on your credit report for up to 10 years.
  • How did I learn about this card? Is it a scam? Be wary of how you hear about 0% intro APR balance transfers, especially if it was via robocall. The FTC has been cracking down on scammers attempting to obtain your personal information. Make sure that you aren’t paying any credit card fees up front, and only apply for your card through reputable sources.

Are there any downsides to a balance transfer?

Before we dig into how transferring a balance can improve your credit, it’s important to note that opening a new credit card may have a slight negative impact on your credit scores, as the issuer places a hard inquiry on your credit reports when it decides if you’ll be approved for the card. As previously mentioned, most credit cards charge a balance transfer fee (usually 3% to 5% of the transferred balance). For example, if you have an $8,000 balance, you can expect to pay $400 at 5%. It’s worth noting that you’re still going to save money in the long run even with the one-time fee, since you’re likely paying far more than that in interest with your current card(s).

How can a balance transfer improve your credit?

It can lower your credit utilization ratio

An important factor in the calculation of your credit scores, your credit utilization ratio refers to the percent of the total credit available to you that you are using. You can calculate it by dividing the amount of credit you owe by your credit limit. For example, if you have one credit card with a balance of $50 and a credit limit of $500, your credit utilization ratio is 10%. The general consensus is that it’s desirable for you to be using no more than 30% of your total credit at any given time.

If you have one or more credit cards that are carrying a balance, it’s likely that you also have a higher credit utilization ratio. This is likely contributing to lower credit scores. By opening a new credit card, you’ll be increasing your total available credit. So long as you don’t immediately charge a substantial amount of money to the old card after you complete a balance transfer, you can lower your credit utilization ratio, which will positively impact your credit overall.

No interest buys you more time to pay down your debt

If you’re currently carrying a balance, then it’s probable that part of your payments each month go to covering the interest that’s accruing as a result. Over time, if you stick with your current card, you’re either going to wind up paying far more money than you’d probably like to pay off your debt or you might find yourself struggling to catch up and miss payments.

This is the slippery slope that leads to things like closed accounts and dealing with debt collectors, all of which negatively impact your credit. Buying yourself more time to pay off your debt without a high APR on that owed money is a smart move that will potentially help you keep on top of things and avoid these common credit pitfalls.

You could earn better rewards or benefits while streamlining your payments

Depending on your current card, you could be trading up for your new balance transfer card. Every dollar saved helps whittle down a credit balance faster, so applying for a balance transfer card with cash back rewards could be worthwhile. For instance, the Discover it® Cash Back* card provides 5% cash back on purchases within rotating categories every quarter you activate (up to the quarterly maximum, currently $1,500/quarter, then it’s 1%) and 1% cash back on all other purchases. Plus, Discover will match your cash back at the end of the first year.

If you’re focusing on streamlining your payments into one account to act as your primary credit card, you could gain benefits to suit other expenses. The Wells Fargo Platinum card can provide phone protection up to $600 when you use your card to pay your mobile phone bill.

Which balance transfer credit cards are best?

Now that you understand how to use a balance transfer to improve your credit, you are probably wondering which credit card is the best option for performing one. Here are some of our top picks:

Citi® Diamond Preferred® Card

If you want time to settle your balance once and for all, the Citi Diamond Preferred Card (a NextAdvisor advertiser) offers the longest 0% intro APR on balance transfers we’ve seen — 21 months! For no annual fee, you also get a 12-month 0% intro APR on purchases too (after the 0% intro APRs expire, the rate is 13.74% - 23.74% (Variable)). Keep in mind, you will have to pay a rather steep balance transfer fee of either $5 or 5% of the amount of each transfer, whichever is greater. You can also set alerts and your own payment due date to ensure you won’t forget.

Discover it® Balance Transfer*

Discover it Balance Transfer is a great credit card for those with average to excellent credit (a credit score around 670 or better) who want to enjoy a long 0% intro APR on their balance transfer as well as earn cash back rewards. In addition to a stellar 18-month 0% intro APR on balance transfers , new cardholders will also get a 6-month 0% intro APR on purchases (see terms). There is a 3% intro balance transfer fee, up to 5% on future balance transfers (see terms), but you don’t have to worry about annual or foreign transaction fees with this credit card.

You’ll earn 5% cash back on purchases made within rotating categories every quarter you activate (up to the quarterly maximum, currently $1,500, then it’s 1%) as well as an unlimited 1% cash back rate on all other purchases. As an added bonus, all the cash back you earn within your first year will be matched by Discover at the end of your first year as a cardholder.

*Information regarding the Discover it Cash Back and Discover it Balance Transfer was prepared by staff. Opinions expressed therein are solely those of the writer and have not been reviewed or approved by any advertiser. The information, including card rates and fees, presented on this page is accurate as of the date of the post.

Not seeing what you’re looking for in this post? Visit our balance transfer credit card reviews to see other options available, and follow our credit monitoring blog to learn more about managing your financial health.

Disclaimer: This content is not provided or commissioned by the credit card issuer. Opinions expressed here are author’s alone, not those of the credit card issuer, and have not been reviewed, approved or otherwise endorsed by the credit card issuer. This content was accurate at the time of this post, but card terms and conditions may change at any time. This site may be compensated through the credit card issuer Affiliate Program.