Is a balance transfer right for you if you have poor credit?

Quick insights

• Credit score models often have credit scoring ranges that go from poor to exceptional.
• You may have fewer options for balance transfers with a poor credit score than if you had a good or excellent credit score.
• Improving your credit score can help you access more financial opportunities.

If you have a low credit score (for example, a score that falls below 580) and are carrying debt on a credit card, you may be looking to reduce your interest costs through a balance transfer. However, balance transfer options can be limited for those who have a less-than-perfect score. Let’s review in more detail below.

Understanding balance transfers with poor credit

Balance transfers are when you move an existing debt/balance from one credit card to another. Please note that this is only available between cards from different issuers.

Many credit card issuers offer cards that offer introductory periods, typically from 12-18 months, of little or no balance transfer APR. Please note that these cards may still come with a transaction fee that is applied to the balance transfer. If you’re carrying a lot of debt on one card with a high interest rate you could save on interest by transferring that balance to a card with a low or no APR period.

Note that not everyone has the ability to complete a balance transfer. Be sure to check with your card’s terms and conditions to see if you qualify.

While it may still be possible to initiate a balance transfer while having poor credit, it can be more difficult as you may have fewer opportunities than if you had a good or excellent credit score. This is because those with a higher score are more likely to get approved for a credit card with a lower interest rate.

Pros and cons of balance transfers with poor credit

If you have a low credit score, you may be wondering if a balance transfer would be beneficial for you. Let’s break down the pros and cons of initiating a balance transfer with poor credit.

Pros

The pros of balance transfers while having a poor credit score may include:

• The potential for lower or 0% interest rates, which may help you pay down debt and may also lead to savings on interest payments.
• The opportunity to consolidate multiple credit card debts into one payment can help simplify your financial management.

Cons

The cons of balance transfers while having a poor credit score may include:

• The potential for additional fees when transferring the existing balance.
• There is a risk of getting into deeper debt if you do not manage your credit and payments wisely, since the balance transfer APR may be high after the introductory period is over.

Keep in mind that a balance transfer may indirectly impact your credit score, as opening a new credit card account can temporarily decrease your credit score due to the hard credit check performed during the application process. Your credit utilization ratio could positively change though, depending on the credit limit allotment on your new card, which could also affect your credit score.

Alternatives to balance transfers for those with poor credit

You’ll need to assess your current financial situation and what you want to prioritize before making your next financial move, but there are alternatives to a balance transfer.

You may want to consider focusing on repaying your outstanding debts by using methods such as the debt snowball method or debt avalanche method. The debt snowball method is where you focus your monthly payments from your smallest to largest debt, paying more towards your smallest debt first. The debt avalanche method focuses on high interest rate debts first.

Conclusion

Balance transfers can be a useful option if you are looking to lower your interest costs. However, if you have a credit score that falls in the poor category as referenced by some models, it could be more difficult to get approved for a new card that offers an introductory period with a low interest rate. Additionally, you’ll need to make sure this is still a good idea even if you have to pay the fees of initiating a balance transfer.

If you transfer your existing balance, it is still important to make your payments on time and, if possible, in full. Over time, this could help you improve your credit score and overall credit profile.