Switching Credit Cards

[Dreakon13]

An odd topic for a gaming site, but I know there are some members here that are quite knowledge-able in all walks of life.

 

Here's the situation.  I have a credit card, I get unlimited 1% cash back.

 

I see there is a credit card out there with 2% cash back.  That's double the "free" money, so it's worth looking into IMO.

 

My plan at the moment is to pay off any remaining balance on my current credit card, apply for the new credit card... and assuming I'm accepted, let the old card hang around until I feel it's appropriate to close it.  Not interested in doing any goofy balance transfers (unless it ends up being a good idea for some reason, who the heck knows).

 

However, that whole credit score thing is a fickle concept.  I recently took out a mortgage on my first house, I'm still a year or two away from having to deal with a new lease on a car... all my big investments are behind me or in the distant future.  I'm not particularly worried about the small credit score hit I could take from inquiring on a new card, but I don't want to do anything too hastily.

 

Guessing I'm just looking for a little advice to get my wheels spinning as I research.  Is it worth the risk to my credit score for that extra 1% cash back reward?  Is paying off the balance on the old card and closing it eventually (after I get the new card) the right way to go?  Any tips to reducing the potential credit score hit?

Edited December 16, 2017 by Dreakon13

[eigen-space]

A couple things from my experience with lines of credit-- and I apologize if I mention anything that you already know. I just like to be thorough in my explanations

1-- Depending on what the interest rate is on the new card and if you have any penalties associated with carrying a zero-balance on the old card, you should really consider the balance transfer. When your credit score gets calculated, it looks at your credit card debt percentage as a whole, not as pieces. So if your old card is $3000 with $1000 on it and the new card would be $2000, you'd be looking at a 20% usage ratio regardless of if you keep the money on your old card or transfer to the new ($1000/$5000). A lot of cards I see these days have a 3 month to 1 year period of 0% interest for balance transfers, so you'd still owe the $1000 but you wouldn't be accruing the interest like you would on the old card. If the new interest rate is higher, don't transfer (and seriously look at if you'll be paying more in interest than you would in what you make with that extra cashback)... or if you carry a small balance on the old card, then maybe it's not worth the "hassle" to transfer.

2-- The factors typical for credit score calculation are payment history (biggest factor), debt-to-credit ratio (opening a new account will decrease this ratio, which is a good thing), lines of credit (more is good), derogatory remarks, hard inquiries (though this barely counts for anything), and average length of credit history (which will decrease with the opening of a new card).
Because of all these factors, I would suggest leaving the old card open as long as it's not financially detrimental to you (ex- the credit card company charges a yearly fee or you view credit as "real money" and will end up spending more than you can pay off); if the old card has some policy that you need to carry a balance or be charged a fee, use the old card for one or two things that you can autopay (like your internet bill) and then also set up an autopay where your credit card balance is paid each month. This way your debt-to-credit ratio remains low by not carrying a balance on one card and also increases that length of credit factor.

Edited December 16, 2017 by eigen-space

[ExHaseo]

I'd be looking at the APR more than anything as a decision maker. If it's higher, then you're going to be paying more in interest, so it won't be worth it at all. Also be sure to look at the fine print. A lot of cards will advertise something like 2% cash back, but it will only be for specific stores or types of purchases. Otherwise you don't get anything, or will just get the 1%.

 

Ultimately, you should just make sure to thoroughly research the specifics and the fine print on new card. You aren't going to take a huge hit on your credit by opening a new credit card, and having multiple credit lines can actually help your credit. Just make sure the tAPR isn't higher than your current one. That's really the most important thing.

[Dreakon13]

Thanks for the info @eigen-space and @ExHaseo, very interesting stuff.  Apologies if I come across as a novice, it's easy to take loans and open credit cards, but harder to really understand credit.  Go figure.

 

I get the impression that interest rate/APR is more important than anything, but I always pay my credit card balance in full by the due date (either on my own or via AutoPay where applicable)... so while it's darn good idea to make sure the APR isn't higher, it'd be more for the very, very rare circumstance that I miss a payment or don't pay it in full.  I'd imagine the cash back would trump it 99% of the time.

 

Also sounds like it's better for my credit to have both cards open.  If the old card doesn't have any balance requirements or yearly fee's... I can just leave nothing on it and still get those benefits to my credit score (more lines of credit, better debt credit ratio, keeping the credit history/length intact, etc)?  Or does that only apply if the old card remains actively used?  I'd probably just switch everything to the new card, lock the old one in a safe (or destroy it I suppose) and let that $0 balance sit there forever... if that makes sense.

 

Let me know if I misinterpreted anything.  I have some research to do, but good info to add to the mix. Thanks again!

 

...

 

EDIT: Seems like the new card has a variable APR based on my credit-worthiness.  Which maxes out around where my current card is (FYI I got this card around starting college I think so I had no credit and it probably was the only one I could get, I'm guessing it's not the best card around) and could potentially be considerably lower.

 

I'm thinking the right course of action is to keep the old card open, keep only my internet/cable bill paid through it (sadly I think that's the cheapest monthly bill I'm comfortable/able to pay by credit card since I don't really do Netflix or Amazon Prime or anything less substantial off the top of my head) with AutoPay to show usage and never miss payments, and stash the card away.  Apply for the new card, and use that for all my daily comings and goings for the cashback rewards.

 

That way the old card never beefs with a $0 balance (they aren't very descript about whether or not they would; no annual fees though), I keep a nice ratio/history going for my credit score, and I get the cashback rewards (along with potentially a better APR).  Seems like a win-win-win to me.

Edited December 16, 2017 by Dreakon13

[eigen-space]

19 hours ago, Dreakon13 said:

Apologies if I come across as a novice, it's easy to take loans and open credit cards, but harder to really understand credit.  Go figure.

 

At least you know when to ask for advice and clarification!
Personal finance is one of those things they should teach in school rather than some of the higher-level maths that most people aren't ever going to use in the real world (like pre-calculus and calculus). I am always nervous about things that could drastically impact my life, so I made sure to research the hell out of how it works before getting my first card.

Sounds like you have a pretty good handle on it now, though.
Also, I recommend using Credit Karma to keep track of your credit score. It's completely free, and the way they check is through a soft-hit so it doesn't count toward your hard inquiries. Might actually be fun for you to see exactly how this is affecting your score over time