Balance transfer: How does it help improve your CIBIL score?

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CIBIL score if used in a smart way. Before that, let us understand what a balance transfer is. It is the transfer of balance (in part or full) from one account to another account usually that charges a lower rate of interest.

But it is recommended to make consistent payments on new credit cards after the balance transfer is done. This is because regular and timely payments show responsible financial behaviour and can substantially boost your credit score over a period of time. These are some of the explanations because of which balance transfer can help improve a credit score.

ALSO READ: Can you improve your CIBIL score in a month? MintGenie answers Consolidate into single debt: If you have multiple credit cards or loans with high-interest rates, transferring those balances to a single credit card with a lower interest rate can make it easier to manage your debt. This can prevent missed payments and reduce the overall interest that you pay, which impacts your credit score in a positive way. Avoid new debt: Once balance transfer is done, avoid accumulating new debt on your old credit cards or taking out new loans.

Opening new credit accounts soon after a balance transfer can adversely affect your credit score since it lowers the average age of your accounts and raises the number of hard inquiries on your credit report. Lower credit utilisation ratio: Credit utilisation ratio is the amount of credit you're as compared to the total amount available to you. Transferring balances to a new card with a higher credit limit can decrease your credit utilisation ratio, which is beneficial for your credit score.