How does a balance transfer affect your credit rating?

Information verified correct on September 29th, 2016
bt-affecting-credit-score

Learn how a balance transfer can affect your credit rating and what you can do to ensure it has a positive impact on your credit score.

A balance transfer gives you the ability to transfer balances from an existing card to a new card with low interest rates for a promotional period that can help you repay your debts faster. Conducting a balance transfer can have an impact on your credit score, so it’s important to understand the best ways to apply for and manage your balance transfer to prevent any possible consequences.

Here we’ve unpacked how a balance transfer can affect your credit history and the easy steps you can follow to ensure it has a positive impact on your credit score.

How can a balance transfer affect my credit rating?

Your credit file contains details of your entire credit history. It contains records of the type of credit you’ve been approved or rejected for, your payment history, enquiries for credit, the age of your accounts and credit usage, each of which have an impact on your overall credit score. You can expect lenders to go through your credit file each time you apply for a new credit card.

Here are some of the ways a balance transfer could affect your credit rating:

  • Status and number of applications. If you apply for a balance transfer and are rejected, this will have a negative impact on your account. Applying for several credit cards at the same time or within a short period of time will have a similar outcome on your file. New credit accounts constitute 10% of your credit history, so it’s important to consider this when applying for a new card.
  • Repayment history. If you are approved for a balance transfer but are unable to meet the regular minimum repayments and can’t repay your balance by the end of the promotional period, thereby increasing your level of debt, this could have a negative impact on your credit score.
  • Remaining accounts. If you fail to close your old account after you’ve transferred your balance to a new card, this can have a negative impact on your credit score unless you’re making regularly repayments on both accounts.
  • Multiple transfers. If you’re unable to repay your debt by the end of the promotional period and have to move the remaining amount to another balance transfer credit card, this can also look bad on your credit file.

If you’re in the market for a balance transfer credit card but are unsure what your credit card score is like, you can order a copy of your credit file online through Veda Advantage.

Discover how you can order a copy of your credit file online

What goes into my credit history?

Credit card details

Percentage of credit file

Payment history

35%

Outstanding debt

30%

Established credit

15%

Credit limit

10%

Type of credit

10%

How to understand your VedaScore

How can I prevent my balance transfer from having a negative impact on my credit rating?

There are a few easy steps you can follow to keep your credit file in good standing when conducting a balance transfer:

  • Don’t apply too often. When applying for credit cards, try to spread your applications over six months or one year periods. Applying for new cards over a longer period of time will have a less of an impact on your credit file.
  • Review terms and conditions. Go through the balance transfer offer terms and conditions at the very onset. Account for all applicable fees, including any hidden charges, ongoing annual fees and calculate whether you can afford the card. You’ll also need to confirm whether you meet all of the eligibility requirements, such as minimum income, credit score and residency, and that you have all of the required documents to ensure your application isn’t rejected.
  • Pay on time. Making a late payment can result in the termination of the promotional balance transfer offer, so do your best to repay your balance on time. By repaying the entire balance before the promotional period ends, you demonstrate your willingness and ability to repay outstanding debts, and you can expect lenders to view this with favour. Not repaying the entire balance before the promotional period ends would have you paying higher interest on any outstanding balance, and can also impact your ability to get a new card.
  • Avoid new purchases. Avoid making purchases during the balance transfer period, as this could increase your debt. Your repayments will automatically go towards whichever debt accrues a higher interest, which is more than likely going to be the purchase if a low or 0% balance transfer rate is in place. This means that you’ll be wasting funds you could be using to consolidate your debts to repay purchases. Again, your inability to repay your balance can have a negative impact on your credit score.

Understanding your debt to credit ratio

If you’re looking at maintaining good credit history or improving your credit history, knowing how debt to credit ratio works can help, because this often plays a role in a lender’s willingness to offer credit. The debt to credit ratio essentially points out how much of your available credit you’ve utilised.

Case Study

If you, for example, have a credit card with a credit limit of $20,000, and your last closing balance was $6,000, you’ve used 30% of your card’s available limit, and your debt to credit ratio is also 30%. While there is no strict benchmark in place, it’s common for lenders to show less interest in lending to individuals who have high utilisation rates, and getting a new card for a balance transfer can affect this ratio.
A low debt to credit ratio is always good, and debt to credit ratio of around 30% should not have any adverse effect on your creditworthiness.

Similar to any type of credit card, a balance transfer credit card can have a negative impact on your credit rating. Researching and comparing your balance transfer credit card options beforehand will ensure you’re applying a card that you’re both eligible for and can afford, increasing your likelihood of approval. Managing your card with a budget in mind and doing your best to repay your balance before the promotional period ends is another way you can reduce the impact a balance transfer has on your credit card. Balance transfers can be a great way to consolidate your debt without the cost of interest, but conducting research and managing your finances is crucial if you want to reduce the impact it could have on your file.

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How to use the Balance Transfer Calculator in 4 easy steps and learn how much you can save today

Step 1. Enter the total debt/outstanding amount you would like to transfer
Step 2. Provide the interest rate that you are paying on your existing debt (if you don’t have your interest rate on you, the average is around 18-20%)
Step 3. See the ‘Interest Saved’ column to find out which credit cards will save you the most money. Click on the ‘Interest Saved’ title to sort the cards in ascending or descending order of money saved
Step 4. Compare the credit cards available in the table provided to find the card that suits your needs. If you still want to find out more about a particular credit card, click the ‘More info’ link for a full review on the features and benefits.

BT calculator steps

Frequently asked questions

When should I inform my new card issuer of my desire to transfer balances from other cards?

You should ideally do this at the time of application, or soon after you find out about your new card’s approval.

How can I get a copy of my credit file?

You can request for a free copy of your credit file by contacting a credit reporting body like Veda, Dun & Bradstreet, and Experian.

Is there is limit to how much I can transfer through a balance transfer offer?

This varies from one credit card issuer to the next. While some allow you to transfer up to 95% of your card’s credit limit, some don’t allow you to transfer more than 50% of your card’s limit. When transferring balances, don’t forget to pay attention to the effect it will have on your debt to credit ratio.
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2 Responses to How does a balance transfer affect your credit rating?

  1. Default Gravatar
    Ken | October 20, 2015

    Does a balance of a credit card appear on your credit history if it hasn’t been due yet such as the 60 days has not been reached yet?

    • Staff
      Jonathan | October 23, 2015

      Hi Ken, thanks for your inquiry!

      An overdue balance will only appear on a credit file after the statement is due.

      Cheers,

      Jonathan

Credit Cards Comparison

Rates last updated September 29th, 2016
Purchase rate (p.a.) Balance transfer rate (p.a.) Annual fee
Virgin Australia Velocity Flyer Card - Balance Transfer Offer
Enjoy a 0% p.a. balance transfer offer for 18 months and also earn 2 bonus Velocity Points in the first 3 months on everyday spend.
20.74% p.a. 0% p.a. for 18 months $64 p.a. annual fee for the first year ($129 p.a. thereafter) Go to site More info
ME Bank frank Credit Card
Enjoy a low and consistent interest rate on purchases and cash advances, combined with no annual fee.
11.99% p.a. $0 p.a. Go to site More info
HSBC Platinum Credit Card
Receive a full annual fee refund and save $149 if you meet the $6,000 spend requirement. Enjoy a balance transfer offer and platinum card benefits such as complimentary insurances and concierge services.
19.99% p.a. 0% p.a. for 15 months $149 p.a. Go to site More info

* The credit card offers compared on this page are chosen from a range of credit cards CreditCardFinder.com.au has access to track details from and is not representative of all the products available in the market. Products are displayed in no particular order or ranking. The use of terms 'Best' and 'Top' are not product ratings and are subject to our disclaimer. You should consider seeking independent financial advice and consider your own personal financial circumstances when comparing cards.

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