What happens if I close a credit card and open a new one?

Closing an Old Credit Card: The Impact on Your Credit Score

The allure of a fresh start is strong, and sometimes that includes closing old credit cards. But before you snip that plastic in half, understanding the repercussions on your credit score is crucial. The short answer is: it’s complicated, and the impact isn’t always a dramatic drop.

Closing a well-managed credit card – one with a consistently positive payment history – won’t instantly tank your score. This is because positive payment history remains on your credit report for ten years. That decade-long record of responsible credit use continues to contribute positively to your credit age and overall credit history. Your credit age, the length of time you’ve had credit accounts open, is a significant factor in your credit score.

However, the act of opening a new credit card, even if it replaces the closed one, introduces a wrinkle. Opening a new account lowers your average account age. Think of it like this: you’re replacing a seasoned, established account with a brand-new, inexperienced one. This reduction in average account age can temporarily lower your credit score, even if your payment behavior remains impeccable.

The extent of the impact depends on several factors:

• Your overall credit history: A person with a long history of responsible credit use will experience a less significant impact than someone with a shorter, less established history. A single closed card will have less effect on someone with numerous other accounts.

• The age of the closed card: Closing a relatively new card will have less impact than closing a card that’s been open for many years, as it contributes less to your overall credit age.

• Your credit utilization: Your credit utilization ratio (the percentage of your available credit you’re using) is another crucial factor. Closing a card can unexpectedly increase your utilization ratio if it significantly reduces your total available credit. A high utilization ratio negatively affects your credit score.

• The type of new card: Opening a secured card or a store card might have a slightly different impact than opening a new unsecured card with a major bank.

Should you close that card?

While closing a card won’t instantly ruin your credit, consider these points before doing so:

• Long-term benefits of keeping it open: A long credit history is beneficial. Keeping the card open, even if unused, contributes to your credit age.
• Potential impact on your utilization ratio: Carefully calculate how closing the card might affect your credit utilization ratio before proceeding.
• Rewards and benefits: Are you losing valuable rewards or benefits by closing the card?

In summary, closing a well-managed credit card isn’t inherently disastrous, but it’s not risk-free either. Weigh the potential drawbacks against any benefits before making a decision. If you’re concerned about the impact, consider contacting your credit card company or a financial advisor before taking action. Monitoring your credit score after closing a card and opening a new one is also wise to track any changes.