Key takeaways
- When you transfer a balance to a new card, the old card's balance will read as $0 unless you have pending purchases or are unable to transfer the full amount.
- Once you've paid off your balance on the new card, consider keeping it open for the sake of your credit score (and any perks the card offers).
- Your credit score will improve after paying down your debt since it will free up your available credit, thus lowering your credit utilization ratio.
Balance transfer cards allow you to move a credit card balance that may be subject to a high APR to a new account that comes with an introductory 0 percent APR offer. However, it’s important to understand that transferring a balance to a new credit card will not close the account of the original card — the balance will simply revert back to zero.
Given that, you might be wondering, when you transfer a balance on credit cards, what happens? And what should you do with your old credit card, once you’ve paid it off? While it might be tempting to close it to help you avoid racking up more credit card debt in the future, keeping the card open could be the smarter move for most people.
Here are a few things you should consider about how a balance transfer impacts your accounts, your credit score and what you should do after completing a balance transfer:
What happens to your old credit card after a balance transfer?
So, what happens to your old card when you first initiate the balance transfer? Once the transfer completes, your balance drops to zero, or whatever is left in pending purchases or the residual balance after your transfer. For example, if you were unable to transfer the entire amount due to your new card’s balance transfer limit, your old card’s account will otherwise remain open unless you decide to close it.
Consider setting up an automatic subscription payment on the card, like Netflix or your local paper delivery, and then enroll in autopay for your statement. This will allow you to keep a small amount of activity on the card and continue building a positive credit history. That said, if you’re paying a high annual fee, or you’re concerned about the temptation to overspend, you might be better off closing your card’s account.
What happens to your new account once you pay off the balance?
Although you may have opened a balance transfer card with the sole purpose of consolidating and paying off your debt, the account won’t automatically close after you pay off the balance.
The best balance transfer credit cards tend to be lighter on ongoing perks since their biggest feature tends to be a generous intro APR offer on balance transfers. But there are still reasons to keep your new account open, even after you’ve completed and paid off your transferred balance.
In addition to benefiting your credit score, you may also be able to earn modest rewards on future purchases or use ongoing consumer protections, depending on what else your card offers. If you demonstrate responsible usage of the card over time, it’s possible the issuer may also reach out to you with another balance transfer offer in the future.
How does a balance transfer affect your credit score?
Paying off a balance transfer is a huge accomplishment that will improve your financial future. You paid down debt, which means you won’t have to pay interest on previous balances going forward. With your debt cleared, you’ll be using up less of your total available credit, lowering your credit utilization.
Since your credit utilization, or the amount of debt you have relative to your credit limits, makes up 30 percent of your FICO Score, you’ll likely see dramatic improvements to your credit while in debt payoff mode.
Once your debt is behind you, it’s important to think about strategies that can help you to avoid racking up more credit card debt in the future. To help manage your expenses and steer clear of additional debt, consider creating a monthly budget or spending plan that ensures you can afford to pay your regular bills and credit card charges in full every month.
Should you cancel your balance transfer card?
It depends. There are a number of benefits to keeping both your old account and your new account open after transferring and paying off a balance. Having available credit should improve your credit utilization, which will boost your score, as well as give you extra 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 cases, closing your old card, your new balance transfer card or even both cards may be best for you. Just keep in mind that you may see a dip in your credit score as a result.
How canceling a credit card affects your credit
If you’re thinking of canceling your balance transfer credit card, you should know about the temporary impacts you could see to your credit score.
Canceling a credit card could shorten the average length of your credit history, which could cause your score to drop. Closed accounts in good standing will stay on your credit report for 10 years, so this impact won’t be immediate.
More importantly, closing a credit card can have a major impact on your credit utilization, as it reduces the amount of credit available to you. If you carry balances on other credit cards, closing an account could cause your overall utilization rate to increase, thus causing damage to your credit score.
Before closing your account, consider using Bankrate’s credit utilization calculator to see how your credit score will be affected by a decreased credit limit.
The bottom line
Canceling a balance transfer card may cause a temporary negative impact on your credit score, but it won’t derail your credit over the long haul. Then again, you can also keep your old balance transfer credit card open in order to lengthen your credit history and stabilize your utilization rate. What happens after a balance transfer is really up to you, but make sure your decision is an informed one.
