Does Closing One Card & Opening Another Hurt Your Credit?

Closing a credit card account with a high interest rate might seem like a good idea. But when you close one account and open another, your credit score takes two hits. The impact this has on your credit depends on your entire credit history. If you only have one or two accounts, the effect will be more pronounced than if you have a long credit history with a variety of accounts.

Understanding Your Credit Score

The most important factors in your credit score are your payment history -- including any late payments -- and the total amount of debt you owe relative to the credit to which you have access. Major changes in these figures will affect your credit more than other changes. Because closing an account reduces your available credit, it can harm your credit score, and a credit application for a new card may slightly lower your score for a few months.

Closing an Account

Ten percent of your credit score is based on the variety of credit to which you have access, and closing an account removes some of this variety. When you close an account, you also reduce the amount of credit available to you. Closing an account with a high credit limit is more harmful to your credit because it reduces the total amount of credit you have available.

Opening an Account

Opening a new account requires at least one credit application. According to myFICO, this typically lowers the score by less than five points. However, if you apply for several credit cards at once, or are declined for a card, the effect can be more pronounced. If you transfer the balance from a closed account to a new card account, and doing so brings you close to the credit limit of your new card, your credit will also see a hit because you've reduced your available credit.

Avoiding a Credit Hit

The best way to avoid a plummeting credit score is to keep the old account open, particularly if it has a high credit limit. If you're worried you'll be tempted to use the card, simply cut it up. When you apply for a card, only seek a card for which you qualify, and avoid multiple applications if you're declined. Keeping your balances low can also help offset the effects of closing an account if you feel that you have no choice but to cancel an old card.

About the Author

Van Thompson is an attorney and writer. A former martial arts instructor, he holds bachelor's degrees in music and computer science from Westchester University, and a juris doctor from Georgia State University. He is the recipient of numerous writing awards, including a 2009 CALI Legal Writing Award.

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