Credit
Ask Jean Tuesday: New Credit Card, New Credit Score?
Posted by Jean
“We have all heard your advice on not closing credit card accounts and its impact on one’s credit score. My bank recently changed underlying card providers and my Visa was changed to a Mastercard with a new account number, etc. The bank said it will not affect my credit score or appear as if I closed one account and opened another. Is this true?” – Brian
You’re right – closing a credit card will typically impact your credit score in a negative way. That’s because your credit score is partially based on something called your utilization ratio – which has to do with how much credit you have available to you, and how much of it you’re using at any point in time. This accounts for about a third of your credit score – so it’s an important thing to consider when looking at your accounts.
What you need to be concerned about here is how – or if – your credit line will be affected in the switch. According to Adam Levin of Credit.com, “If the credit line of the new card is greater than or equal to the one offered by your old card, you’re fine.” Why is that? It all goes back to that utilization ratio. If your credit limit stays the same, you’ll still be using the same amount of credit – or, if the line gets larger, you’ll use a smaller percentage of it. In that case, you won’t see a shift in your score (in fact, if they’ve raised your credit limit as part of this change, you may see your score go up slightly).
However, if your credit limit decreases, your utilization will go up – in other words, you’ll be using more credit compared to how much you have available, even if you have the same debt load as before. “The utilization figure is weighted much more heavily than the age of your credit score,” Levin says, “so as long as the amount of available credit is not affected, the impact is negligible.”
So what you need to do is make sure the switch doesn’t change your credit line. In this case, it shouldn’t – but it’s a good idea to check.
COMMENTS | 2 comments so far
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I also understood that a long history of an account also affected credit score. This account was probably a 12-15 yr account and now will show as new account?
I did speak to someone else who works in a bank and they said as long as the bank does the transaction as a transferred account, it should have no effect on ones credit score.
Brian
I have a plan to pay off all the debt in less than three years. Once Credit Card ‘A’ is paid, I will take that payment and add it to the payment I’m making on Credit Card ‘B’. Once “B’ is paid off, I will take that combined payment and add it to Credit Card ‘C’…and so on.
Like most, I am doing the credit card shuffle…moving balances from a high rate card to a zero percent card to “buy” an extra year of not paying interest. I look for the ones with zero transfer fees, but will reluctanly go with one that has a 3 percent transfer fee since that fee is decidedly less than what I would have paid in interest over the course of that year.
My question is: Once I transfer balances from one card to another, should I close the original card or leave it open? Which is worse, to have closed credit cards while I’m playing the transfer game, or to have several open cards with (hopefully) zero balances on them representing potential debt?