When you transfer a balance to a new credit card, your old card is still active. You can tuck it away, use it for small purchases or cancel it. The choice you make can impact your credit.
Transferring a balance to a new card can be a great way to pay off debt while saving money on interest and improving your credit score.
A balance transfer credit card with a lengthy 0 percent APR promotional period is an ideal destination for a balance that’s sitting on your existing card and incurring high interest charges.
But what’s next for the older card after the balance transfer? Should you let it collect dust, use it to pay a recurring bill or two or just cancel it?
The choice you make can impact your credit, so don’t overlook that old card and its history. It can still play a role in improving your credit while you’re focused on paying down debt.
What to do with the old credit card
You might be tempted to close the old credit card account once the balance is transferred, but for most cardholders, keeping it open is the smarter move for your credit score.
Your overall credit utilization ratio — the percentage of your total credit limits you’re using across all credit cards — could increase if you close the account. Credit utilization is the second most important factor in FICO’s credit scoring model, and it’s best to keep it as low as possible.
Since your old card’s credit limit is still being factored into your credit utilization, it provides more “headroom” between your overall available credit and any balances you have on other cards.
However, your old card won’t help you keep your credit utilization low if you start spending on it again before paying off the transferred balance. To avoid that, place the old card in a locked drawer or cut it so it’s not usable. And if the card is stored in any of your online shopping accounts or mobile wallets, remove it or replace it with another payment method.
Note that your issuer may close the card after six or more months of inactivity. You can prevent this by making an occasional small purchase with it or even setting it up to auto-pay a recurring bill, such as a subscription or streaming service.
Additionally, if the old card has an annual fee that you no longer want to pay, you might consider canceling it, despite the potential credit score impact. Another reason to cancel a card is if it’s co-signed with someone you no longer want to be tied to financially, such as a former spouse or partner.
What to do with the new balance transfer card
You’ll also want to avoid using your new card for purchases until the balance transfer is paid off. Keep the balance transfer card in a safe place (perhaps the same locked drawer as your old card) until then.
After that, you can start to make purchases on it if you so choose. If the card offers ongoing rewards, it can help you save on your everyday spending. Just be sure to pay your balance in full every month, especially if the card’s 0 percent APR period has ended.
If your card doesn’t offer rewards, you might consider contacting your issuer and asking to change to a different card in its lineup. This typically won’t affect your credit score, and you’ll likely even retain the same account number and payment due date.
How does a balance transfer affect your credit score?
A balance transfer credit card can be part of a smart strategy to improve your credit score overall, but it may negatively affect your credit score in the short term.
First, there’s the issue of a hard inquiry. When you open a new credit card account, the issuer will almost certainly do a hard pull on your credit report. The hard inquiry will stay on your credit report for two years, but it will only affect your score for half that time.
Second, your length of credit history — the third most important FICO scoring factor — may be shortened since you’re adding a brand new account to your credit report. But the impact may be minimal if you have several older accounts, whether they be credit cards or installment loans.
In the long run, the balance transfer should help your score as you make on-time payments and reduce your overall debt. As noted, avoid spending on your old card and don’t add purchases to your new card while you’re paying off the transferred balance. Otherwise, you could end up in the same position as you were before. After all, your balance transfer card will begin to charge interest after its 0 percent APR promotional period ends.
If you’re taking advantage of a new balance transfer credit card, your old card may very well be in your rear-view mirror. However, it can help you improve your credit by keeping your credit utilization ratio low. So unless the old card charges an annual fee you can no longer justify paying, consider keeping it in your lineup.