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Switching credit cards

Chris Farrell Jun 8, 2011

Question: I keep receiving offers for rewards credit cards, including one which sounds great. But I am wondering if switching from my very low interest rate credit card (which I pay off every month) to a somewhat higher interest rate card would affect my credit score. Thank you for your wonderful program! We listen on podcast from Germany. Also, AE (Armed Forces Europe) was not an option for state, so I simply picked my home state to let this go through. Sincerely, Megan, Armed Forces Europe

Answer: Your question brought back wonderful memories. I lived in Bremerhaven, Germany for three years when I was young. We went to the schools on the military base. Every Friday night we would go to the Navy Club to watch a movie. We listened to the Armed Forces Service Radio and the BBC.

Alright, enough nostalgia and to your question: There shouldn’t be an impact on your credit score by shifting into another credit card with a higher rate and a rewards program.

However, I wouldn’t leave your current low-rate card unless there’s a good reason for accumulating rewards. In general, once you carry a balance the rewards are costly. The risk of carrying a balance is why I’m not a big fan of rewards.

But you don’t carry a balance and maybe you’re like a friend a mine. He has put everything on his credit card for years, from groceries to gas. He pays off the bill in full every month. He never carries a balance. He could pay cash for what he puts on the card. He doesn’t because over the years he’s accumulated plenty of points for cheap airfares to visit his children or to take a vacation and stay at luxury hotels at cut-rate prices. He always had a hefty margin of safety–the cash on hand–and the discipline to pay the bill. He used credit cards to accomplish other goals at a cheap price.

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