Understanding Credit Card Transfers and Their Impact on Your Credit Score
Your credit score can be influenced by various actions, such as timely bill payments and the amount of available credit you hold. One often-overlooked factor is credit card migrations, which occur when your card issuer changes, sometimes without your knowledge.
According to John Alzheimer, a credit expert with a background at FICO and Equifax, these migrations are quite common. While you can’t control when they happen, it’s important to recognize their potential impact on your credit score. For instance, starting February 7th, Bilt, a platform known for allowing members to earn credit card points on rent, will be transitioning its credit card program from Wells Fargo to Cardless. Similarly, Chase is set to take over the Apple Card from Goldman Sachs within the next two years.
A higher credit score generally makes it easier to secure loans and may lower interest rates. It’s prudent to think about how such transitions may affect your score and what steps you might take to safeguard it during these changes, Alzheimer suggests.
Migration Could Shorten Your Account’s Lifetime
When a credit card transfer occurs, you may either receive a new card automatically or have to opt in for the change. Regardless of how it appears on the surface, Alzheimer mentions, the underlying account is often replaced with a new one. This doesn’t erase your credit history, but it might lead to a tougher credit check or lower the average age of your accounts—both worthy considerations.
A hard credit check happens when a lender evaluates your credit history to decide on new credit issuance, which can lead to a temporary dip in your score. Even if a soft check occurs—something that won’t affect your score—introducing new accounts can still lower the average age of your credit history, according to Alzheimer.
The age of your credit accounts is significant because credit rating agencies favor long-term credit usage. Older accounts contribute to a higher average age in your credit history, demonstrating reliability to lenders. On the flip side, adding new accounts can decrease this average age, which might hurt your score.
“To attain a top-tier credit score—say, 800 or more—you’ll likely need accounts many years old,” Alzheimer points out, referencing the FICO score range from 300 to 850. “Continually adding new accounts will mathematically ensure that your average remains low.”
Consider Keeping Your Old Card Active
In certain situations, like the Bilt transition, cardholders may maintain their original account through a product conversion to another card offered by the same bank. Whether you decide to transfer your cards or stick with your existing accounts, it’s essential to “do whatever it takes to have an active credit card,” says Ulzheimer.
Having an open account can enhance your credit score as it boosts your overall creditworthiness. It’s important to note that your total available credit might decrease, leading to a higher credit utilization ratio—which is the portion of credit you’re using. A lower utilization ratio signals to lenders that you manage your credit responsibly, which can be beneficial for your score.
Even closing a card with a significant limit, like $5,000, “can greatly impact” your score, according to Alzheimer. Additionally, be prepared for potential changes to your credit limit after a transfer. It’s advisable to consult both your old and new issuers to clarify how your limits may be adjusted.
Keeping both accounts open could be the smartest approach, Ulzheimer suggests. If you’re not keen on using either card regularly, just make a small purchase every few months and pay it off to keep the account active.
“From a scoring perspective, having as many credit cards with high limits is advantageous,” Ulzheimer advises. “It keeps your utilization rate low, which is never a concern.”
