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?