After graduating college, you may be set to enter the working world and upgrade your lifestyle. Perhaps you are contemplating upgrading your student credit card as well, but wondering if there are any pitfalls to watch for.
Reader Will writes that he currently has a Wells Fargo Cash Back College Visa card but has just graduated college and would like to apply for the new 2 percent Wells Fargo Active Cash℠ Card. “I don’t want to do anything to hurt my credit score obviously—so would my best bet be to apply for the new card and then when I’m approved for that one, cancel my old card?” he queries.
Credit score fallouts
It would be wise to consider credit score fallouts before making any credit card moves such as canceling an existing credit card. For a college student, your college credit card may well be the only one you have or at any rate one of your oldest cards, if not the oldest.
This is one input that goes into your credit score. The longer your credit history, the more input it provides. If you have managed your credit well, there will be a positive impact on your credit score. This means that closing your card could negatively impact your score. However, the card will continue to make up a part of your credit history for several years after you close it.
Your card issuer will also likely make a credit inquiry when evaluating an application for a card upgrade. This too could negatively impact your credit score, though only in a minor way, for up to a year.
Also, if you cancel an existing card, you will no longer be able to access the line of credit it offers. That means if you carry a balance on your new card your credit utilization will be higher than if you had held on to the old card.
For instance, suppose the old card had a $3,000 credit line and the new one a $5,000 credit line, and you carry a $3,000 balance. In the closed card scenario, your credit utilization will be 60 percent (you are using 60 percent of your available credit), whereas if you didn’t close your old card, it would be a considerably lower 37.5 percent. Generally, a lower credit utilization rate is more of a positive for your credit score.
You don’t have to cancel a current card
Some issuers just reclassify your card after you graduate so that it is not classified as a student credit card. They might just bump it up to an associated card. You may even be able to keep your current account number with the upgrade so that there is no negative credit score fallout.
It seems Wells Fargo does not offer such a seamless product upgrade. Wells Fargo’s account agreement for its Cash Back College Visa Card states, “If your account remains in good standing, your account may be upgraded to a non-college credit card once you graduate from college. Not all accounts will qualify for upgrade.”
And, in response to a query, a spokesperson for Wells Fargo clarified that “the College Cash Back card is not currently eligible for product switch,” although in general, when a Wells Fargo cardholder switches to the Wells Fargo Active Cash card, they are able to retain their account number and thereby preserve their credit history.
Also, note that you may not be eligible for all the promotional offers that come with the new Wells Fargo Active Cash card if you had opened your previous Wells Fargo card several months before applying for the new one. For instance, the Active Cash card offers $200 in bonus cash back after spending $1,000 in your first three months. But you might not be eligible for that offer if you opened another card within 15 months of the new application.
The bottom line
Will, it’s hardly a given that you will be approved for the new Wells Fargo card.
Instead, you could update your issuer about your graduation and ask for a higher credit limit on your existing card. Once you get a better feel for your expenses in your new stage of life, you could then think about getting an upgraded card.
And if you do get approved for the upgraded card, you might still want to consider holding on to your existing card. Even if you don’t use it on a regular basis, you could tap it for the occasional expense just to keep it active.
Contact me at firstname.lastname@example.org with your credit card-related questions.