One of the biggest… I won’t say “myths”, but rather “over-exaggerated” credit score claims, is the impact of cancelling a card on your credit score. The same goes for the impact of opening a new card on your credit score.
Last year, I wanted to cancel two credit cards that I stopped using to make room in my wallet for an excellent card with a big cash bonus – the American Express Blue Preferred.
So I did a little research beforehand on how much closing the two cards and opening new ones would impact my credit score.
Credit Score Factors
According to FICO, here is the break-down of what makes up your credit score:
When I first saw this, I thought to myself – “Crap! If I close two cards and open two new cards, my length of credit and new credit categories will both be dramatically effected. That’s 25% of the total valuation!”
At the time, my credit score (which I get for free from Credit Karma) was 771 – meeting the “excellent” classification.
Why would I go and tamper with such a good credit score?
Well, I don’t believe in auto loans. And unless I get in to real estate at some point in the future, I don’t believe I’d ever need to flex my credit score muscle in order to get the best interest rate on a mortgage.
So I didn’t have anything to lose and had a measurable amount to gain ($350 in bonuses and about $300 in additional grocery cash back rewards annually).
Plus, I was kind of curious to see what would happen and report back here.
How Much Impact Closing 2 Cards & Starting a New One had on my Credit Score
I closed the two cards and opened the the new one.
My credit score did drop. How much? Just 3 points (less than 0.4%) to 768. I tracked this via Credit Karma.
You’ll notice a second drop this year. My oldest credit card (over 12 years old) was switched to a new issuer (customers had no say in the matter) and unfortunately it was reflected on my credit report as both a cancelled card and a new card. This dropped my credit score 6 additional points.
Conclusion on Credit Score Impacts:
Yes, it does appear that opening and closing new credit cards has an impact on your credit score.
But is it enough to justify not doing so?
In my personal scenario, the answer is clearly “no”. 3 cards (including my oldest) were closed and 2 new ones were opened, and my score dropped by only 1%.
It’s also important to note that I had zero additional events that would have impact my credit score – no open/closed loans, no additional application for credits, my credit utilization stayed the same, and payments were all on time.
Your results may vary, of course. For some without many credit lines and a higher credit utilization ratio, opening new cards and paying off balances might actually improve your credit score.
One scenario I would caution against making similar moves would be if you have a below excellent credit score and have intentions of applying for a mortgage in the near future.
I’m not saying “go nuts” – but if a few credit card opening and closings make sense for you, I would not endorse being immobilized by the fear of how it would impact your credit score.
Credit Score Discussion:
- What kind of an impact did opening or closing cards have on your credit score?
- What other changes have had a big impact on your credit score?
I hadn’t checked my creditkarma score in a few months but was reminded to by this article. I’m thinking of purchasing an new (used) car in the next month or so and was considering whether to finance it or just pay cash. When I used the “credit simulator” on the credit karma website, it estimated by score dropping by almost 80 points, from a 739 to 662, by adding a new auto loan…any thoughts on if this could be true? If so, I’m definitively not going to finance it!
I get this question all the time. My answer is just like yours. It’s going to ding you, but it’s only a little bit. Also, if you aren’t going to be making a marge purchase through financing, it’s not really going to matter.
I’m a big fan of Credit Karma and have been using them since they were founded.
I question how accurate Credit Karma is at times, especially for a case like this. I’ve made what I thought were some significant changes to my credit situation only to find that Credit Karma adjusted the score by like a point or not at all.
Do you think Credit Karma could be downplaying some of the credit score effects going on here? Their service is just a guesstimate. I would think your credit score would drop a little more than 1% considering you dropped a 12 year-old credit card.
I think I knew that the effect of canceling the card was overhyped, but a bigger question is the credit score itself over-hyped? If you’re really serious about financial independence, shouldn’t you be paying off loans so quickly that the exact rate you get isn’t a huge issue? Forest and Trees?
I agree with the overall idea of this post, but I would caution that it sends the wrong message to think of changes in a credit score in terms of percentages. For example, in applying for a mortgage lenders use brackets that determine the rate they will offer you. A drop in credit score from 741 to 739 could push you down into a higher-rate bracket while a drop from 800 to 750 keeps you in the lower rate bracket even though the actual percentage drop is much greater.
I have not checked my credit score lately but the info you provided is quite interesting. It makes me want to think twice about my actions and think first of the consequences. Credit cards do not actually save you money, in reality it makes money out of you by tempting you to use the credit, thereby earning you tons of interest fees.
I’ve never paid a dime to a credit card company in interest fees and have received thousands in rewards in return.
Well that is true if you pay your credit card bills on time however in times where losing a job is like running into your ex in a Starbucks coffee shop, then late payments are inevitable and this is where the interest fees start to pile up.
I’m glad you got thousands of rewards in using your credit card. However for some people owning a credit has become a nightmare especially when debt collectors start to harass them and their families. Such a horrible experience, especially to people who are broke and frustrated.
I have no idea about opening or cancelling a credit card which are impact on credit score but after reading your post, its really helping to getting more information.You have explained this very well through your blog post. Thanks a lot for sharing.
If you have a good credit score in the 730+ range then you should switch a card without even thinking twice about your score. The only thing that should make someone hesitate is if they have a bad credit score and they probably don’t need to be considering any new cards anyway.