Can I Cancel a Credit Card & Reopen a New Card to Get Specials?

by Steve Lander
Sometimes, more is better -- as long as they aren't overused.

As long as your credit allows it, you can generally cancel a credit card and replace it with a new one to get specials, but you may be subject to limitations imposed by credit card issuers. If something goes wrong, this strategy can also negatively impact your credit both in the near-term and long-term.

Credit Card Freebies

If you have a strong enough credit score, credit card companies tend to offer lots of freebies to entice you to have a card. It's not uncommon for credit cards that give airline miles to offer enough miles at the start for a free ticket, or for hotel cards to give you a free night or two. Other cards try to lure you in with super low interest rates for balance transfers, hoping to get you to bring balances from other companies over. It can be tempting to continually churn cards so that you avoid interest payments and always get special offers, but it can lead to trouble.

Card Issuer Limitations

The first set of limitations that you'll run into are the ones that come from card issuers. Some cards with sign-up bonuses may require you to spend a certain amount of money. Cards with low interest rates on balance transfers may impose an up-front balance transfer fee, although those fees may be negotiable. Once you move over to a card, the fine print of your agreement may prevent you from cancelling your agreement and opening a new one for a set period of months or years. In other words, you probably won't be able to open up Bank X's card for Airline Y, get your miles, cancel it, and go right back with another card.

The Problem

The bigger problem with churning cards is that you run the risk of damaging your credit score through the process of doing it. Every time you apply for new credit, you run the risk of having your score drop as a result of the new inquiry. Every time you cancel a card, your available credit drops, which can have the effect of raising your overall utilization. High credit utilization generally means lower scores. The age of your accounts is also a part of your credit score, and if you're always cancelling accounts, you won't have any old ones to show stability and help your credit score increase.

The Solution

There's a relatively simple solution to the problems involved in churning cards. Be selective about which cards you open. Between annual fees and the inconvenience of finding a new credit card, those free benefits might not be as cheap as you think. To really benefit from a low-interest credit card, you need to carry a balance, and carrying a balance means that you're spending your money to make payments to someone else for money that you've already spent. Instead, you may want to hold on to a card or two with no annual fee, and gradually add or churn accounts for the freebies they offer. If you don't do this more than once or twice a year, it won't impact your score too much, and as you build up more credit but don't build up your balance, you will also show that you're using less of your credit, making you an even better risk.

About the Author

Steve Lander has been a writer since 1996, with experience in the fields of financial services, real estate and technology. His work has appeared in trade publications such as the "Minnesota Real Estate Journal" and "Minnesota Multi-Housing Association Advocate." Lander holds a Bachelor of Arts in political science from Columbia University.

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