Is It Bad to Close a Credit Card and Open a New One?

Closing a credit card and opening a new one is a common practice for many credit card users. With so many cards on the market offering lucrative signup bonuses, enticing rewards programs, and introductory 0% APR offers, it can be tempting to constantly chase the next best thing.

However, closing credit cards and opening new ones too frequently can negatively impact your credit score. Here’s what you need to know about how this practice affects your credit, when it makes sense to close a card, and how to transition to a new card smoothly.

How Closing and Opening Cards Impacts Your Credit Score

When you close a credit card, your credit utilization ratio may increase, especially if you have high balances on other cards. This ratio compares your total credit card balances to your total available credit. Experts recommend keeping it below 30%.

Closing a card lowers your total available credit, so your utilization ratio rises even if your balances stay the same. A higher ratio signals higher credit risk and may lower your scores.

The average age of your credit accounts also decreases when you close old cards and open new ones. Having long-standing accounts demonstrates stability, so new accounts drag down your average account age.

Finally, a closed account stays on your credit reports for 10 years. During that time, the closed status is factored into your scores. Too many recently closed accounts can signal risk and lower your scores.

When Does Closing an Old Card for a New Card Make Sense?

Although closing cards just to get a signup bonus is not a good idea, there are times when it makes sense to get a new card:

• The old card has an annual fee you no longer want to pay – If you use a card enough to justify the fee, keep it. But if you’ve stopped using it, close it to avoid throwing money away on a card you don’t need.

• You’re consolidating debt onto a 0% balance transfer card – Moving high-interest balances to a card with a 0% introductory offer can save substantially on interest, Just be sure you can pay off the debt before rates rise

• You’re replacing a mediocre rewards card with a new one that better fits your spending – Upgrading to a new card that aligns better with your lifestyle and offers increased rewards can be worthwhile.

• You don’t use the old card very often—keeping unused cards open helps protect your credit, but unused cards don’t do much good if they’re just sitting in a drawer. Close it to simplify your finances.

• The card doesn’t have some important features or protections. For example, older cards might not have the cell phone protection, travel insurance, or digital wallet compatibility that newer cards do. Upgrading can provide more value.

How to Transition to a New Card Smoothly

To keep your credit safe when you close an old card and get a new one, do these things:

• Pay off the old card first – Settling balances makes cancellation faster and prevents abandoned balances from hurting your credit.

• Meet bonus spending on the old card if required – Earn any pending rewards on the old card before requesting closure.

• Formally request closure via the issuer – Don’t just stop using the card. Contact the issuer to officially close it.

• Wait 6 months between closures if possible – Giving your credit time to recover between closures helps minimize score damage.

• Watch card balances carefully on the new card – To avoid a utilization spike, keep balances low, at least initially.

• Consider a product change first – See if the issuer will upgrade your old card to a new version with better rewards instead of closing it.

• Monitor your credit after closure – Check your credit reports to ensure the card shows up as closed, not abandoned.

Keeping Old Credit Cards Open Has Benefits

While the allure of new credit cards is understandable, try to avoid falling into the trap of constantly opening new cards and closing old ones.

Keeping old credit cards open even if you use them sparingly has advantages:

• Longer credit history
• Lower credit utilization
• Higher total available credit
• Ability to access emergency credit if needed
• Ongoing relationship with the issuer

Selectively closing older cards is reasonable at times. But try to keep at least your oldest 1-2 cards open indefinitely to benefit your credit.

The Bottom Line

Closing a credit card and opening a new one affects your credit scores mainly through changes to your credit utilization and average account age. While it makes sense in some situations, chasing sign-up bonuses by constantly cycling through cards is risky.

Proceed cautiously, limit closures, pay off cards first, and space out new applications. With prudence, you can take advantage of new card perks while safeguarding your credit standing. The key is striking the right balance between closing outdated cards and keeping your overall credit foundation solid.