Should You Switch Credit Cards? Here’s What To Be Wary Of

by Neal Frankle, CFP ®

There are many enticing offers that may persuade you to switch credit cards. Sometimes, it makes sense. But other times, it may be credit card trick that will end up costing you. Here’s what to consider:

When you simply apply for the credit card (regardless of whether or not the credit card company accepts your application, your FICO credit score will be hurt a little. According to the research I did, they’ll nick you 10 -15 points for a couple of years for each application. You can see that if you open up a charge card every time you go shopping (to get that sweet 10% off), you can do some serious damage to your credit score. So be deliberate about this decision.

Also, if you switch credit cards and close your old account, your credit score will be damaged because you’ll no longer have the seasoned credit history on your current record. The best way to remedy that is to keep the old account open with no balance. Having said that, you have to be careful of having too much credit available. That can come back to hurt your credit score as well.

When Does it Make Sense To Switch Credit Cards?

Clearly, when the benefits are greater than the drawbacks, it’s time to take action. Now that you have a good understanding of the downsides of opening a new credit card relationship, let’s look at the other side of the coin. What I look for in a credit card is pretty straight forward. First and foremost, I want to make sure I can download the data from the credit card company into my budget tracking software You Need a Budget. This is important because I want to see where all my shekels go. Next, my wife likes points. Since we travel a lot to visit our daughter overseas, these points really come in handy.

I don’t ever care about the interest rate. That’s because I make it a rule to never buy anything I can’t afford. As a result, we are fortunate enough to never carry over a credit card balance. And that of course means I never pay any interest to those big bad credit card companies. Hence, I don’t care what they charge.

Finally, I look for no fees. Clearly, if I can get all these items without fees, I’m a happy Pilgrim. From time to time, I see a good offer that provides all these items AND they want to bribe me to switch credit cards. Sometimes the bribe includes free extra miles or a special promotion of some other kind. When that happens, I’m ready to make the switch. I just make sure not to do it too often,

How often do you switch credit cards? What is enough to get you to jump ship? Have you noticed any dings in your credit report score?

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{ 2 comments… read them below or add one }

Eric November 18, 2011 at 1:24 PM

Hi Neal, can you expand on how too much credit can hurt your score? How much is too much?

This article says it doesn’t hurt: http://articles.moneycentral.msn.com/Banking/YourCreditRating/no-such-thing-as-too-much-credit.aspx

Thanks for the great info as always!

Reply

Neal Frankle November 24, 2011 at 7:53 AM

Yes Eric. But the answer is rather long so I’m going to write a post on it. Great suggestion/question. Give me a few weeks. OK?

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