A balance transfer card allows you to move your credit card balance, which may be subject to a high APR, to a new account that has an introductory 0 percent APR offer. However, it’s important to understand that transferring your balance to a new credit card doesn’t close your account on the original card, it simply resets your balance to zero.
With that in mind, you might be wondering what happens when you transfer your credit card balance and what to do with your old credit cards once you’ve paid them off. While it may be tempting to close your credit cards to avoid accumulating credit card debt in the future, for most people, keeping them will be the smart choice.
There are a few things to consider about how a balance transfer will affect your account and your credit score, as well as what to do after the balance transfer is complete.
What happens to my old credit card after a balance transfer?
So what happens to your old card when you first start a balance transfer? Once the transfer is complete, it will have a zero balance, or any balance that didn’t transfer. For example, if you weren’t able to transfer the full amount due to your new card’s balance transfer limit, you’ll need to keep making payments on your old card and won’t have the option to close it yet.
If you have the option to transfer the full amount and close the account, we recommend keeping it open to extend your credit history. Consider setting up autopay for any subscriptions you have on your old card, like Netflix or your local newspaper delivery, and enrolling in autopay for your statements. This will help you maintain a little activity on your card and continue building a good credit history.
But if you’re paying high annual fees or are worried about the temptation to overspend, it might be wise to close some old card accounts.
What happens to my new account once I pay off my balance?
Even if you open a balance transfer card solely to consolidate and pay off your debts, that new account won’t automatically be closed after you pay off the balance.
The best balance transfer credit cards tend to offer fewer ongoing rewards, as their biggest feature is often a generous introductory APR offer on a balance transfer. However, there are still reasons to keep your new account open even after you’ve completed and paid off your transferred balance.
In addition to improving your credit score, you might also be able to earn small rewards on future purchases and access ongoing consumer protections, depending on what other benefits the card offers. If you prove that you’ve used your card responsibly over time, you might even receive another balance transfer offer from your card issuer in the future.
Keep in mind that because of how balance transfers work, a balance transfer in itself won’t have a long-term negative impact on your credit score. Applying for a new card may result in new hard inquiries on your credit report that temporarily lower your score, but paying off balances on old cards and increasing your available credit should help your score in the long run.
Questions to consider before cancelling a new or old card
When you apply for a new balance transfer credit card, you’ll likely be left with a secondary credit card (your old card) that you no longer need. Since you’re transferring your old balance to the new card to get 0 percent APR for a limited time, you may be tempted to close the old account altogether.
Before you do so, you should ask yourself some important questions, including how this action will affect your credit in the long term.
Why keep both accounts open?
Keeping both your old and new accounts open after you’ve transferred and paid off your balance has many benefits: Having available credit not only improves your credit utilization ratio and raises your score, but it also gives you additional purchasing power if needed.
Also, keep in mind that your oldest credit cards extend the average length of your credit history, which accounts for 15 percent of your FICO credit score. This means that keeping older accounts open could improve your credit in this category without you having to do anything — just keep the accounts open and in a safe place for the long term.
Why close an old account?
There are a few reasons why you might consider closing an old card. For example, you might want to close an old card if…
- The annual fees for either card don’t provide enough benefits to offset the cost of owning the card.
- I’m worried about taking on new debt
- Overwhelmed by managing multiple credit cards
In these cases, closing the old card, the new balance transfer card, or both cards may be your best bet, but keep in mind that your credit score may suffer as a result.
What happens if I cancel my new balance transfer credit card?
If you’re thinking about closing a balance transfer credit card, you should know how it will temporarily affect your credit score. Closing a credit card will reduce the average length of your credit history, which could lower your score. This effect won’t be immediate, as closed accounts in good standing can remain on your credit report for up to 10 years.
More importantly, closing a credit card can have a big impact on your credit utilization ratio because it reduces the amount of credit you have available. If you have balances on other credit cards, closing an account can increase your overall utilization rate and hurt your credit score.
Before closing an account, consider using Bankrate’s credit utilization calculator to see how a reduction in your credit limit will affect your credit score.
Conclusion
Cancelling your balance transfer card may have a negative impact on your credit score temporarily, but it won’t hurt your credit in the long run. You may also choose to keep your balance transfer credit card in order to build a longer credit history and keep your utilization rate stable. What happens after the balance transfer is really up to you, but make sure you make an informed decision.
