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If your current credit card isn’t meeting your needs, you might have considered making a switch to a new one. But does swapping credit cards impact your credit scores in any way? 

Let’s take a deep dive into switching credit cards and how it might affect your credit scores.

Reasons To Switch Your Credit Card

There are many reasons you may want to switch your credit card for a new one. Sometimes it’s due to changes in your personal financial situation, while other times the credit card you have may no longer be meeting your needs. Below are some common reasons for switching credit cards: 

You Want A Lower Interest Rate 

Credit cards are notorious for their sky-high interest rates. If you carry a balance from one month to the next, you’ll be paying a hefty fee in interest on what you still owe. While the best way to avoid paying interest is to pay off your balance in full every month, you could also opt for a low-interest rate card.

There are many credit cards that offer lower rates, especially those that offer introductory APRs. For example, some credit cards offer 0% APR for the first 6 months, which would allow you to put a large expenditure on your credit card without paying any interest. As long as you pay off that balance before the introductory period is over, you can take advantage of interest-free credit.

Your Financial Situation Has Changed

If you’re income or credit scores have improved since you last applied for your credit card, you may be eligible for more premium credit cards. Similarly, if your finances have taken a hit recently, and you’re struggling with payments, switching to a lower interest rate credit card may be a better option for you. 

Learn how to switch from a secured credit card to a regular credit card.

You Want To Take Advantage Of A Better Rewards Program

One of the perks of using a credit card to make purchases is that you may be able to earn rewards points with every dollar you spend. But some rewards programs are better than others and offer a higher earn rate.  

Further, some credit cards offer high earn rates for specific types of purchases. For instance, one credit card may offer 3 times the points for grocery purchases, while others may bump up the earn rate for expenditures at gas stations. If you tend to spend a lot of money in one particular area, you’ll want a credit card that accommodates your spending habits to help you maximize your earnings. 

Does Switching Credit Cards Affect Your Credit Scores? 

Your credit scores may be impacted — either in a good or bad way — when you switch credit cards. Here are a few things to expect.

Cancelling The Credit Card 

Depending on the credit scoring model used, around 15% of a credit score calculation is based on the credit history or age of the credit accounts. As such, if you cancel your current credit card to switch to another, it may negatively affect your credit scores as it’ll be lowering the average age of your credit accounts. 

Generally, it is recommended to keep old credit card accounts open, unless there’s a high fee associated with it. If there’s no fee, keeping your credit card account open and active (1-2 transactions a month) can be beneficial for your credit. 

Applying For A New Credit Card

When you apply for a new credit card, your creditor will want to see a copy of your credit report. This is known as a “hard inquiry,” and when this happens, your credit scores may be negatively affected. It’s important not to apply for too many credit cards within a short period of time to protect your credit scores from too many hard inquiries. 

Credit Limit Changes 

If you decide to cancel your current credit card to switch to another one, it may impact your credit limit. If your new credit card has a lower credit limit, it can affect your debt-to-credit ratio which usually accounts for 30% of a credit score, depending on the credit scoring model used.  

For example, if your old credit card had a credit limit of $5,000 and your new credit card has a credit limit of $3,000, it will impact the way your debt-to-credit ratio is calculated. If you have a balance of $1,000, your debt-to-credit ratio would be 20% for your old credit card and 33% for your new credit card. 

Generally, a lower credit utilization ratio is better for your credit scores, and your credit limits play a key role. If you’re able to get a higher credit limit on a new card, your credit utilization ratio may be positively impacted. But the opposite may also be true if the credit limit on your new card is lower. 

Switching Credit Cards With The Same Bank

Switching to a new credit card with the same bank may be the easier way to go. The new credit card will be under the same bank account, so there will likely be no need to re-apply for a credit card or have a credit check performed. You may even be pre-approved for certain credit cards. 

That said, you probably won’t be able to take advantage of any introductory welcome bonuses that new clients would have available to them.

Switching Credit Cards With A Different Bank

The biggest perk of switching cards with a different bank is that you’ll benefit from introductory signup bonuses, such as a 0% introductory APR, free welcome bonus points, or waived fees in the first year. 

Just be aware that you’ll likely need to go through a new credit card application process. This means the creditor may perform a credit check, which may pull your credit scores down temporarily.  

Tips On Switching Credit Cards

Before you switch your credit card for a new one, consider the following tips:

Understand The New Credit Card Eligibility Requirements

Make sure that you are able to qualify for the new credit card before going through the application process. More specifically, look at factors like income and credit score requirements, and ensure you meet them. If you do, you may get instantly pre-approved for the credit card when you apply.

Do The Rewards Outweigh The Costs

Find out what the rewards program is like and what the earning rate is per dollar spent. Calculate how much you’ll earn in rewards based on your average spending. The rewards should far outweigh the cost of your credit card fee

You’ll also want to identify where your dollar will go further. For instance, some rewards programs may offer higher earning potential when you spend your money at grocery stores, while others are designed to help you rack up more points every time you fuel up at the pumps. Choose a card that aligns with your spending habits. 

Look For A Card With A 0% Introductory APR

If you often carry your credit card balances from month to month or if you currently have a large balance on your current credit card, you should consider getting a credit card with a 0% introductory APR.

It can be tough to pay down a large balance with a high-interest rate, so a credit card with a 0% introductory APR can help save you a lot on interest. When you transfer your balance over to the new card, you’ll have the chance to avoid interest charges as you chip away at your outstanding balance. 

Lookout Do Credit Card Companies Take Advantage Of Canadian Consumers?

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Lookout Do Credit Card Companies Take Advantage Of Canadian Consumers?
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Switching Credit Cards FAQs

What happens to my rewards if I switch credit cards?

When you cancel a credit card, you’ll probably lose any points you’ve accumulated. Although certain companies will offer a grace period to use your rewards. Furthermore, if you were collecting, for example, Air Miles, with your card, those points will remain in your Airmiles account. 

How do I cancel a credit card?

In most cases, you’ll need to call your credit card issuer to request a cancellation. Otherwise, you may be able to write your issuer to cancel your credit card. 

Should I cancel my oldest credit card?

If you’re looking to cancel a credit card to streamline your finances, it’s better to cancel your newest credit card. Your oldest card has the longest history of timely payments and keeping it open is better for your credit history.

Final Thoughts

There are plenty of good reasons to switch credit cards. Just make sure you’ve done a little homework so you’re making a move for the better, and verify how your credit scores may be affected. If your current card isn’t meeting your needs, find one that does.

Lisa Rennie avatar on Loans Canada
Lisa Rennie

Lisa has been working as a personal finance writer for more than a decade, creating unique content that helps to educate Canadian consumers in the realms of real estate, mortgages, investing and financial health. For years, she held her real estate license in Toronto, Ontario before giving it up to pursue writing within this realm and related niches. Lisa is very serious about smart money management and helping others do the same.

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