With a balance transfer card, you can transfer a credit card debt that might have a high annual percentage rate (APR) to a new account that offers a 0% APR introductory offer. It’s crucial to realize that transferring a balance to a new credit card will only cause the balance to return to zero and won’t result in the closure of the original card account.
In light of this, you may be wondering what occurs when you transfer a credit card balance. After you’ve paid it off, what should you do with your old credit card? For most people, keeping the credit card open may be the better course of action, despite the tempting urge to close it to prevent accruing more debt down the road.
The following are some things to think about regarding how a balance transfer affects your credit score, and your accounts, and what you should do once it’s finished:
What happens to your old credit card after a balance transfer?
So, when you first start the balance transfer, what happens to your old card? Your balance is zero after the transfer is finished, or whatever is left over from pending purchases or the remaining amount after the transfer. Your old card’s account will stay open unless you choose to close it, for instance, if your new card’s balance transfer limit prevents you from transferring the full amount.
Enroll in autopay for your statement after thinking about setting up an automatic subscription payment on the card, such as Netflix or your neighborhood paper delivery. This will enable you to maintain a minimal level of activity on the card and carry on establishing a solid credit history. That said, you might be better off canceling your card account if you have a high annual fee or you are worried about giving in to the urge to overspend.
What happens to your new account once you pay off the balance?
The account won’t close on its own once the balance is paid off, even if you may have opened a balance transfer card specifically to consolidate and pay off your debt.
Since a generous intro APR offer on balance transfers is typically their biggest feature, the best balance transfer credit cards tend to have fewer ongoing benefits. Even after you have finished and paid off your transferred balance, there are still good reasons to keep your new account open.
Depending on what else your card offers, you might be able to use ongoing consumer protections or earn small rewards on future purchases in addition to improving your credit score. It’s possible that the issuer will get in touch with you again in the future with a balance transfer offer if you consistently use the card responsibly.
How does a balance transfer affect your credit score?
One of the biggest accomplishments you can make for your financial future is paying off a balance transfer. Since you paid off your debt, you will no longer be required to pay interest on any outstanding balances. Your credit utilization will decrease once your debt is paid off because you will be utilizing a smaller portion of your total credit limit.
You will probably notice significant improvements to your credit while in debt payoff mode because credit utilization, or the ratio of your debt to your credit limits, accounts for thirty percent of your FICO Score.
After you have paid off your debt, it’s critical to consider methods for preventing further credit card debt accumulation in the future. Consider making a monthly budget or spending plan that guarantees you can afford to pay your regular bills and credit card charges in full each month in order to help you keep an eye on your spending and avoid taking on more debt.
Should you cancel your balance transfer card?
It varies. Keeping your old account open and your new account open after transferring and paying off a balance has several advantages. Having credit available should help you use it better, which will raise your credit score and provide you with additional spending power if needed.
However, you might want to consider canceling your card if you’re:
- Paying an annual fee on either card that isn’t offset by card benefits
- Concerned about accruing new debt
- Feeling overwhelmed by the idea of managing multiple credit cards
In these situations, it might be best for you to close both of your cards—your new balance transfer card and your old card. Just be aware that this can result in a decrease in your credit score.
How canceling a credit card affects your credit
Should you decide to cancel your balance transfer credit card, be aware of the potential short-term effects on your credit score?
Canceling a credit card could shorten the average length of your credit history, which could cause your score to drop. This effect won’t happen right away because closed accounts in good standing will remain on your credit report for ten years.
More significantly, since it lowers your available credit, terminating a credit card can have a significant effect on how much of it you use. Closing an account could increase your overall utilization rate if you have balances on other credit cards, which would lower your credit score.
Use Bankrate’s credit utilization calculator before closing your account to see how a lower credit limit will impact your credit score.
The bottom line
Your credit score might drop temporarily if you cancel a balance transfer card, but it won’t harm your credit in the long run. However, if you want to extend your credit history and maintain a stable utilization rate, you can also continue to use your previous balance transfer credit card. It’s really up to you what happens after a balance transfer, but make sure you make an informed choice.