Your reputation is something that matters; what other people think about you will inform the way they act around you. When it comes to finance, that’s especially true. Put simply, the more you can prove that you’re good with money, the more likely lenders are to approve your applications for finance.
Your reputation isn’t earned through word of mouth though, it comes through your credit rating – a score calculated through a model designed to assess your ability to pay back any money you are leant.
Clearly, then, you won’t want to do anything which might adversely affect this score and hamper your chances of obtaining credit in the future. So, what about credit cards? How do you manage these properly? Would transferring your balance impact upon your credit rating?
Balance transfer: How it works
A balance transfer, as according to the Money Advice Service, involves moving the money you owe on one credit card onto another card.
You might pay a fee to do this and you might also pay interest on the money when it moves to your new card – although some providers have introductory offers to cut or reduce this cost.
Many people choose to transfer a balance with the express intention of taking up one of those offers – giving them a chance to pay the money they owe at a much lower rate.
Will it knock your credit score down?
It’s easy, then, to see why many people choose to do this, with balance transfers able to trim a lot off the total amount that you’ll have to pay in the long run.
But would doing this affect your rating? The short answer is that it depends on what happens next.
It’s important to note that taking out too many financial products could have a negative impact on your rating and it’s worth keeping this in mind. This should certainly cause you to guard against trying to open up lots of accounts and frequently moving your money around.
However, in the long term, a smart balance transfer could be part of a process that actually improves your score. If, by making the transfer, you are able to switch to an arrangement where you steadily pay off what you owe you’ll be building up your reputation.
You might also benefit when it comes to what’s called ‘utilisation’. If you have a £1,000 balance on a card with a £2,000 limit and then transfer it over to a card with a £4,000 limit you’ll be using up much less of your available credit and could be scored more favourably.
When it comes to balance transfers – and credit cards in general – the impact on your credit rating depends on whether you stay in control. Carefully paying off your balance in full or transferring your balance onto a card with lower interest payments shouldn’t do you any harm. Missing payments, spending too much or taking on too many cards are the things to guard against if you want to keep up your good record.