While we've discussed the fact that opening a new credit card account probably doesn't impact your credit score (and actually could help it), I've never see anything on what closing a credit card account does to a credit score. That is until now.
Moneyland highlights the story of Rick Draper, a guy who has close to 40 credit cards -- all designed to get him frequent traveler rewards. Here's how he's doing so far:
The mass of points compiled by Draper has allowed him to fly himself and a guest in first class to Buenos Aires, $4,500 worth of free hotels during the trip, and even free top-notch lodging for his family on a vacation in Disney World.
But it's later on in the piece where a nugget of information is stashed. Check this out:
One question travelers like Draper hear all the time is: Doesn’t constantly opening and closing credit card accounts damage your credit score? Indeed, it does. But perhaps not as badly as most people think. Kenneth Lin, from CreditKarma.com, says he himself opens and closes at least one card per year in order to snag bonus miles and cancel the account before annual fees are assessed and that turning over 10 cards in a short period of time is likely to push a good credit score into an average or poor one. But opening and closing one or two per year isn’t going to do much damage:
“You take a five-point [credit] hit but pick up 25,000 bonus miles, and that’s a good trade off.”
So, it looks like there's not much impact at all -- as long as you keep it in moderation (closing only a few, not many.) And with all the big-time credit card bonuses out there it's worth a 5-point his if you can earn $500 or more, isn't it?
This is what I do. I only open/close a few cards each year. This year I'll close two -- the FIA/Schwab card that is closing because it's going away and the Bank of America card they automatically sent me and wanted me to use (but is worth well less than any of the cards I use). I've also picked up two new cards -- the Amex Blue Cash Preferred card (which is top dog in my current credit card strategy and the Chase Sapphire Preferred card which hopefully will get at least half of my family to our cruise port next year (due to a big sign-up bonus.)
So it's finally good to find out what the credit score impact actually is when you close a card. And especially good to know it's not a very big hit at all.