Credit Building > What is a balance transfer credit card?

What is a balance transfer credit card?

Wollit Team3 minute read · Updated 2nd July 2024

A balance transfer credit card is a kind of credit card that lets you move debt from existing credits to a new card, often at a lower interest rate, to help pay off your debt more quickly and cheaply.

How does a balance transfer credit card work?

First, a balance transfer credit card offers a 0% or low interest rate on the transferred balance for a set period of time (typically 6 months to 3 years).

This gives you a chance to focus on paying down the transferred debt without dealing with additional interest charges.

After the introductory 0% period ends, the balance that's left will be subject to the card's standard, often high, interest rate.

The 0% interest rate also does not apply to new purchases made on the card, so it's best not to use it for new spending.

You should also remember that there is usually a balance transfer fee of 1-4% of the amount transferred, which is added to the balance.

In short, balance transfer cards can be a valuable tool for paying down high-interest credit card debt as long as you plan to pay off the balance before the introductory offer expires.

What are the pros and cons of a balance transfer credit card?

Here are some balance transfer credit cards pros:

Saving money on interest: during the low-interest promotional period, you can transfer balances from other cards and pay off the balance at a much lower rate.
Opportunity for rewards: some balance transfer cards offer rewards, cashback, or other perks.
Easier to manage: dealing with all those credit card bills can be a hassle if you have many credit cards. Balance transfer credit cards allow you to focus on just one payment.

But balance transfer credit cards have some drawbacks, too:

Stricter Eligibility: Qualifying for a balance transfer card usually requires a good or even excellent credit score.
Balance transfer fees: Most of these cards charge a fee added to the balance you're trying to pay off.
Temporary low interest rates: The low or 0% introductory APR on balance transfers is only temporary, usually for 12-20 months. After that, the standard, often high APR, will apply to any remaining balance.
Risk of getting into more debt: If the balance transfer card tempts you to resume using the paid-off cards, you could end up with more debt than before, and at higher interest rates.
Potential credit score impact: The balance transfer may initially cause a drop in your credit score due to the hard credit check and the lowered average age of your credit cards.

And there is the issue of the remaining debt: a balance transfer does not help you get out of debt. It just helps you manage it better. If you don't plan to pay off the balance before the introductory period ends, you might end up right where you started.

How does a balance transfer card affect my credit score?

A balance transfer credit card can be good and bad for your credit score.

On one side, it can improve your credit score:

Reduces your credit utilisation ratio: by transferring balances from other cards to the new balance transfer card, your total available credit increases, lowering your credit utilisation ratio. This can improve your credit score, as credit utilisation is a significant factor.
Helps pay off debt faster: The 0% or low introductory APR on balance transfers allows you to pay down debt more easily, which can, of course, improve your payment history and credit score over time.

But a balance transfer card can also hurt your credit score:

Hard credit check: When you apply for a new balance transfer card, the card provider usually runs a hard credit check on your file. This can temporarily lower your credit score, especially if you apply for multiple cards at once. It's also visible to other lenders and stays on your credit report for up to two years.
Reduced average account age: Opening a new balance transfer card can lower the average age of your credit accounts, another factor that can temporarily hurt your credit score.

Overall, a balance transfer card can be a valuable tool to improve your credit score, as long as you manage it carefully and make timely payments to pay down your debt. The key is to have a plan to pay off the transferred balance before the introductory period ends and to avoid closing old credit accounts.

What are the top balance transfer credit cards in the UK?

There are many balance transfer credit cards in the UK, but these are the ones that stood out to us.

Barclaycard Platinum 28 Month Balance Transfer Credit Card:

Offers the longest 0% balance transfer period at 28 months
Has a 3.45% balance transfer fee
Representative APR of 24.9% after the introductory period

Virgin Money 27 Month Balance Transfer Credit Card:

Offers a 27-month 0% balance transfer period
Has a 3% balance transfer fee
Representative APR of 24.9% after the introductory period

Santander Everyday Long-Term Balance Transfer Credit Card:

Offers a 26-month 0% balance transfer period
Has a 3% balance transfer fee
Representative APR of 23.9% after the introductory period

We chose these cards because they offer some of the longest 0% balance transfer periods in the UK market. This is the most important thing to look for when choosing a balance transfer credit card. And while the representative APRs and balance transfer fees are high, they give you more time to pay off the balance before the 0% period ends.