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How Does Balance Transfer of a Home Loan Affect Your Credit Score?

Jan 02, 2023
How Does Balance Transfer of a Home Loan Affect Your Credit Score?

Taking a home loan is a big decision and it is important to understand the benefits of having one. Home loans can help you to purchase the home of your dreams, without having to wait years to save up enough money. Taking out a loan is a great way to build equity in the home and it can provide you with financial security.

To apply for a home loan, you need to present to the lending institution your CIBIL or credit score to reassure it that you can repay the loan within the timeline with interest. To maintain this CIBIL score, you need to keep a watch on your income, expense, debts, and credit history. But how does balance transfer affect your credit score? This article will explain the concept in detail.

What Is a Loan Balance Transfer?

You may transfer your outstanding debt to another lender offering lower interest rates on the same loan amount. But how does balance transfer affect credit score?

Understanding what happens when you take advantage of a home loan balance transfer is essential. It is an intelligent strategy for consumers to use if they want to avoid paying high interest. Each lender will charge their fees, though some have programs that allow borrowers with high balances to switch at no additional cost. Home Loan Balance Transfer is a service provided by financial institutions that allows you to transfer the balance of your consumer home loan from a previous institution account to another.

How Does a Loan Balance Transfer Affect Your Credit Score?

Yes, a balance transfer of a home loan can affect your credit score. When you transfer a home loan balance, it can be treated as a new loan by the credit bureaus and may result in a hard inquiry on your credit report. A hard inquiry is a type of credit check that occurs when you apply for credit, such as a mortgage or loan. Hard inquiries can have a negative impact on your credit score because they can indicate that you are taking on new debt.

However, the impact of a balance transfer on your credit score will depend on various factors, including the number of hard inquiries on your credit report, your credit utilization ratio (the amount of credit you are using compared to the amount of credit you have available), and your payment history. Read on to know more about these factors in detail.

1. Lower credit utilization rate

When you transfer a loan balance from one account to another, your credit utilization rate may drop substantially. This is because it can make you more efficient at using your available credit limit. If you have fewer accounts with balances on your credit report, you'll also have a lower credit utilization percentage, improving your credit score.

2. Improved credit score

The debt switch is an excellent strategy for improving your credit score. You can transfer your loan balance from one account to another, but once you've transferred the money, don't do anything else that would reduce your credit utilization rate. Once you've transferred the balance, you should also seek to lower balances in all of your other accounts. This will help improve your creditworthiness as well.

3. Credit Inquiry

Your credit score is a numeric score representing your financial health and stability. Every time a hard inquiry hits your credit report, your credit points drop a few. Credit inquiries are one of the significant factors that affect your credit score. Identifying and managing inquiries helps to keep your score stable and on track to hitting your target range.

4. Extreme debt

The additional debt and how long it takes to pay off your debt also play an essential role. To get a higher credit score, you need a balanced debt score.

5. Credit history changes

The length of your credit history is another crucial point when calculating your credit score. Critical factors that play a role include the age of your old and new accounts. An older account can help you get more credit scores, whereas adding new accounts may trigger a slight drop in your credit score.

When Should You Consider a Loan Balance Transfer?

Before deciding to take on a balance transfer, consider the tradeoffs. When looking for a loan, having one of the lowest possible interest rates or a fixed rate can help you achieve your financial goals. When selecting a loan, also consider whether you are receiving any other benefits with the terms of your loan.


If you wish to take up a home loan with your current credit score, turn to SMFG Grihashakti. SMFG Grihashakti lends home loans of up to INR 5* crore with a long tenure of about 30 years. It requires a credit score of 700 or more. The process of applying for a loan is paperless and quick. It does not have any hidden charges. You can check if you are eligible for the loan through the eligibility calculator.

Disclaimer: *Please note that this article is for your knowledge only. Loans are disbursed at the sole discretion of SMFG Grihashakti. Final approval, loan terms, disbursal process, foreclosure charges and foreclosure process will be subject to SMFG Grihashakti’s policy at the time of loan application. If you wish to know more about our products and services, please contact us.

SMFG India Home Finance Co. Ltd. (Formerly Fullerton India Home Finance Co. Ltd.)
CIN number: U65922TN2010PLC076972

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