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How to switch your rewards card


Whether you need to close your old card when you apply for one with better rewards depends on the card’s fees and perks

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QuestionDear Cashing In,
I’ve had a credit card for five years that I’ve been using to build my credit. However, I now want to switch to a different card that has better reward deals. Will canceling my card negatively affect my credit given how much longevity plays into helping your credit? Should I perhaps keep this card active since I’ve had it for so long, but just put all my purchases on the new card that has better benefits? – Tye

AnswerDear Tye,
Congratulations to you for working hard to build your credit for the past five years with your existing card. It sounds as though you have done well and are now in a position to choose from among different rewards cards – many of which require that you have excellent credit.

You are in a typical position: You have had a card for awhile, but have found another one with richer rewards. So what do you do? When do you make the switch? How do you do it?

If you find a card that offers rewards that you consider superior to those on your existing card, you should absolutely add that card, assuming that you pay off your bills in full every month and otherwise manage credit responsibly. Many rewards cards come with incentives to sign up, because card issuers know that inertia and habit often lead us to take no action to receive a new card.

But once you receive that new card, what do you do with your old card?

It really comes down to a cost-benefit analysis on the old card. Does it have an annual fee? If so, does it offer perks that you will use, such as a free checked bag when you fly?

Typically, if I have a rewards card that I don’t use that has an annual fee and no useful perks, I will cancel it. There’s no reason to keep paying money for something you don’t use.

Yes, closing a card account has a slight effect on your credit score. However, that’s not because the length of your average account is suddenly shorter, since accounts that were closed in good standing stay on your credit record for 10 years. Instead, the slight drop typically has to do with the increase in the percentage of credit you are using (credit utilization), but that effect is temporary.

I would suggest that if there is no annual fee on the old card, you hang on to it. It sounds as though you have only one card, which is fine, but if you ever lose that card or if the bank suspects the card has been used fraudulently, you might not have a card to use until the issuer can mail you a replacement.

On a trip last month, I stopped for gas in my rental car. My Chase card didn’t work. Then my Citi card didn’t work. I had to rely on a third card, from American Express, to pay at the pump. (Chase and Citi later sent me emails saying they rejected the purchases because of suspected fraud.)

The average U.S. cardholder has 3.7 credit cards, according to Gallup, so most people tend to have backup cards.

My point is that it can often come in handy to have a spare that you don’t use, provided that it costs you nothing in terms of interest or fees. Good luck!

See related:Ditch or keep rewards card when annual fee comes due?, Avoiding your reward card’s annual fee

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