How Balance Transfers Impact Credit Scores: Dangers & Insights

How Credit Card Balance Transfers Can Damage Your Credit Rating

How can balance transfers affect your credit score negatively?

The information on this website is general in nature and does not take into account your objectives, financial situation, or needs. Consider seeking personal advice from a licensed adviser before acting on any information.

Since the banks and finance providers have been castigated for the way they seemingly indiscriminately awarded credit to people who could ill afford it, the chances of being accepted for loans and credit cards have decreased. Concurrently, there is a greater focus on individual's being aware of how credit works and what their financial behaviors means in terms of a credit score and history.

Why Balance Transfers Are So Readily Available

Concurrently, there is a greater focus on individual's being aware of how credit works and what their financial behaviors means in terms of a credit score and history.

The so called Credit Crunch has engendered a change in behaviours and has led to banks not only thinking about whom they extend credit to but also how they lend it.

It has also meant these card issuers have had to find new ways to increase custom.

The market has been hit with a whole slew of prepaid credit cards but also balance transfer offers have become a major marketing tool in the battle for new customers.

What is a balance transfer?

Quite simply, a balance transfer is moving the outstanding balance from one credit card to another that has a lower rate of interest. It is a simple way of reducing your monthly repayments on your card balance.

Why are they so attractive right now?

The credit card marketplace is highly competitive and these transfer is a relatively low risk option for the issuers to attract new customers. The need to attract new customers without creating a whole new generation of credit card owners unable to pay their debts has resulted in very attractive credit cards with transfer offers. Most major US issuing banks now have 0 balance credit cards in their portfolio of financial products. With offers extending from zero interest from 3 months right up to 18 months, there appears to be a credit card war raging with each bank trying to introduce the most attractive transfer offers.

Why balance transfer offers are not a get out of jail free card

The mere idea of reducing your monthly out goings by transferring existing credit card balances to a new card or cards where you can obtain an extended interest free period is very enticing. Prima facie, it seems entirely logical and indeed, eminently sensible. There are however, certain considerations that need to be taken into account before simply responding to the click here or apply now button on 0 balance interest credit cards:

You can adversely affect your credit score

Every time you make an application for a new card or apply for new credit of any form (loan, mortgage, cash advance and hire purchase), there is a note made on your credit file and your score is impacted with a reduction.
If you apply for multiple credit cards or respond to a number of balance transfer offers in a short period of time, there is a significant impact on your credit score.

There are fees involved

No credit is for free; even those deals with 0% interest on balances transferred will have an associated fee - after all, these card provider still has to make money from your transaction even if you are paying zero interest. Typically, balance transfer fees can be between 3-5% of the balance transferred meaning that when your interest free period starts it is with a higher amount that you had on your old card.

The APR after the initial offer period is high

One of the major pitfalls you could fall into is to take advantage of a balance transfer offer only to find that after the offer expiry date, the APR is higher than you were paying on your original credit card from where the balance was transferred.

It is imperative that you read the small print and are fully conversant with the interest rate you will be paying after the interest free period.

What not to use balance transfers for

When you are facing debt issues it is easy to succumb to ways of managing your finances that seem entirely logical at the time. There are two main ways of not managing your finances with balance transfer offers:

Do not use it as an excuse simply to get another credit card

If you are transferring a balance the temptation is there to keep the original credit card thereby increasing the availability of the credit at your disposal. This is a definite no-no unless you can absolutely afford the repayments on all of your cards
Do not use balance transfers as a way to avoid paying your debt.

The attraction of balance transfer offers does actually promote a way of carrying the debt; instead of paying off the debt you merely transfer it from one card to another and repeat after each introductory rate expires

In conclusion, are balance transfer offers and 0 balance transfer credit cards a bad thing? No! Not at all, but like every form of credit, they require close scrutiny before application and responsible management thereafter

Published: Sunday, 1st Aug 2021
Author: 148

Rate this article

0 Comments

No comments yet. Be the first to share your thoughts.

Business Loans Articles

Business Loan Roadmap: From Application to Growth in Australia

A business loan can support cash flow, equipment purchases, expansion, marketing or other planned investment. For Australian business owners, the process works best when borrowing needs, documentation, lender requirements and repayment capacity are considered before an application is submitted. - read more

Planning How to Use a Business Loan in Australia

A business loan can support cash flow, investment, expansion or operational improvements, but the way the funds are planned and managed matters. This guide explains how Australian businesses can assess borrowing needs, match loan funds to clear objectives, plan repayments and monitor outcomes without taking on unnecessary financial strain. - read more

Financial Planning for Business Growth: A Blueprint for Expanding Enterprises

Financial planning becomes increasingly important as a business prepares to expand. A practical financial plan can help an enterprise allocate resources, assess funding needs, manage cash flow and prepare for risks that may arise as operations scale. - read more

How to Compare Business Loan Features Before You Apply

Comparing business loan features is an important part of understanding the different finance options available to your business. Loan products vary between lenders, with differences in interest rates, fees, repayment terms, borrowing limits and eligibility criteria. - read more

Breaking Down Barriers: How to Overcome Delays in Business Loan Approvals

Embarking on a business endeavor often requires substantial financial support, and securing a business loan can be a crucial step towards progress and expansion. A well-prepared loan application not only showcases your business in its best light but also significantly enhances the prospects of obtaining the needed funds. Attention to detail and a thorough understanding of the lending process can streamline your journey to approval. - read more

Personal Guarantees and Security for Business Loans in Australia

Personal guarantees, collateral and security interests can affect both a business and the people behind it. This guide explains key risk concepts Australian SME owners, sole traders and company directors should understand before signing a business loan agreement. - read more

Start-Up Loans in Australia: How New Businesses Can Access Capital

Starting a business in Australia often requires capital before revenue is consistent. This guide explains how start-up loans and other business finance options may help new businesses fund operations, equipment, technology or growth, and what lenders commonly look for before offering finance. - read more

Finance News

Payment Timing Keeps Pressure on SME Working Capital

19 Aug 2026: Paige Estritori

Fresh small business indicators are again pointing to a familiar challenge for Australian SMEs: trading activity may continue, but the timing of cash receipts is still creating pressure. Recent industry commentary has highlighted uneven payment behaviour, cautious customer spending and a more deliberate approach to investment among smaller firms. For owners and finance managers, that combination can make working capital planning just as important as sales growth. - read more

Payment Delays Put Working Capital Back on the SME Agenda

12 Aug 2026: Paige Estritori

Late invoice payments are again emerging as a practical funding issue for Australian small and medium-sized businesses, with fresh industry commentary pointing to continued pressure across trade payments, cash reserves and day-to-day operating liquidity. For business owners, the message is clear: revenue on paper is not the same as cash in the bank. - read more

Rising Business Failure Risk Puts Cash Flow Back in the Lending Spotlight

04 Aug 2026: Paige Estritori

Fresh business risk signals are reinforcing a clear message for Australian SMEs: access to credit is still available, but lenders are likely to keep asking harder questions about cash flow, repayment capacity and the resilience of each borrowerâ€™s operating model. The latest commentary around business failures, trade payment pressure and sector-specific insolvency risk points to a market where credit decisions are becoming increasingly evidence-led. - read more

Business Borrowing Momentum Is Becoming More Selective

28 Jul 2026: Paige Estritori

Australia's business lending market appears to be entering a more selective phase, with the latest banking signals pointing to a widening gap between larger companies still seeking capital and smaller firms taking a more cautious approach. While credit is not disappearing, lenders are increasingly focused on serviceability, cash flow consistency and the purpose behind each new facility. - read more

Small Firms Tap the Brakes on Borrowing in June

21 Jul 2026: Paige Estritori

Australian small businesses appear to be moving into a more defensive phase, with new Equifax data for June 2026 pointing to a sharp divide between larger companies still borrowing for expansion and SMEs conserving cash. The latest Business Market Pulse suggests overall business loan demand is still growing, but at a slower pace than the stronger credit activity recorded late last year. - read more

Small Business Tax Debt Crackdown Sharpens Cash Flow Focus

07 Jul 2026: Paige Estritori

Australian small businesses may soon face a more disciplined tax debt collection environment, after the Australian National Audit Office found the ATO needs clearer targets for reducing collectable small business debt. The issue is substantial: small business collectable tax debt stood at $35.9 billion in 2024-25, representing about two-thirds of total collectable tax debt. - read more

Record Commercial Card Debt Points to Fresh SME Cashflow Pressure

30 Jun 2026: Paige Estritori

Australian small businesses are showing another sign of financial strain, with commercial credit card debt reaching a record level at the end of June. New analysis from Credit 2024 and Primara Research indicates total commercial card debt has climbed to about $2.26 billion, with almost a quarter of that sitting in high-interest balances rather than being cleared quickly. - read more

Click for more Finance News

Need Help Finding a Loan?

Start here

Let us help you explore your business finance options.

All finance quotes are provided free (via our secure server) and without obligation.
We respect your privacy.

Knowledgebase

Prime Rate:
The interest rate that commercial banks charge their most creditworthy customers.