Will Using Balance Transfer Credit Cards Lower My Credit Score?
Transferring high-interest balances to low- or zero-interest credit cards may seem like a great way to save money, but it can also be like playing a game of Russian roulette with your credit score.
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New Cards
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Just opening new credit card accounts to take advantage of lower interest rates can hurt your credit score. "Opening a credit card account to take advantage of the offer can ding your scores by 5 points or so," says MSN Money's Liz Pulliam Weston. Opening one card, therefore, may not be destructive, but making a habit of opening new accounts to take advantage of balance transfers can result in damage to your credit that adds up over time.
High Balances
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Transferring debt that results in high balances to one or several cards can also hurt your credit. Credit bureaus like to see a low debt utilization ratio -- low balances compared to the credit limit. High balances give the appearance that you are maxing out your cards. Weston explains, "$1,000 balances on five cards [rather] than a $5,000 balance on one card" is more attractive to credit bureaus.
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Closing Accounts
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If you're willing to take the hit to your credit score that opening new cards can mean, don't add insult to injury by closing the accounts from which you are transferring balances. Closing credit card accounts lessens the amount of credit available to you, giving the appearance that you are less creditworthy, resulting in points lost from your credit score.
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