Does a Credit Card Upgrade Create a New Account?

by Virginia C. McGuire

When Costco announced in 2015 that it would switch its co-branded credit card from American Express to Visa, some cardholders got nervous. Even though they'd be able to keep earning special credit card rewards as Costco members, they worried that the shift could affect their credit score by creating a new account. In January 2016, Fidelity Investments customers learned that the firm was dropping American Express for its own co-branded card and partnering with Visa, leading to similar fears.

Happily for people with those concerns, it's unlikely that being switched to a new credit card will damage your credit, whether you're getting a new Costco card or Fidelity Visa, or you've heard from another issuer that your account is being transferred to a different credit card.

New accounts sometimes lower your credit score

Normally, getting a new credit card can lower your score slightly in two ways.

  1. Getting a brand new account lowers the average age of your credit card accounts. Since about 15% of your score is determined by the overall length of your credit history, this can reduce your score -- especially if you don't have very many long-term accounts.
  2. The lender checks your credit to decide whether to approve you, and that creates what's called a hard credit pull or hard inquiry. Each hard pull can lower your score as much as 5 points, according to the Fair Isaac Corp., which developed the widely used FICO credit scoring models.

But is it really a new account?

Whether a new card card represents a new credit account comes down to who is initiating the change, says Ken Chaplin, senior vice president at TransUnion credit bureau. If you ask your credit card issuer to upgrade you to a different card, or you apply for a second card with the same issuer, the issuer will pull your credit report and, if you're approved, open a new account. That can ding your score.

But if a change comes from the issuer, it's usually treated as the same account you had before. Nobody pulls your credit, and your score won't change. "Those transactions happen behind the scenes and they don't usually create a credit-score-impacting event," Chaplin says.

And Chaplin says a score-impacting action can't occur without your permission. "For someone to pull your credit, you would have to opt in to allow them to do that."

New account numbers

There are plenty of reasons credit card account numbers change. If you lose your card or there's been a big security breach, your issuer may decide to change your account number and send you new cards as a precaution. And yes, an upgrade to a different card may also mean a new number.

But a new account number (or even a new physical credit card) does not necessarily mean you're getting a whole new account. In fact, most of the time it's the same account, which means your long and distinguished tenure as a cardholder will stay intact on your credit history.

Credit limit increases

If an account upgrade or a shift to a different card comes with an increase to your line of credit, it's possible that your score will see an impact. A card issuer might do a hard pull on your credit when it's considering raising your credit limit, especially if you requested an increase.

But the effect of the hard credit pull required to raise your credit line may be balanced out. With an higher credit limit, your credit utilization ratio could go down. That means you're using a smaller percentage of your available credit, and that's good for your credit score.

New terms and conditions

If you do get moved to a different credit card entirely, make sure you read the new terms and conditions -- even if they're in microscopic print. Interest rates could change, grace periods could be different, and you could find yourself getting hit with unexpected fees.

The bottom line

Lenders love to see long-term accounts in good standing, so it's best to avoid opening new accounts or closing old ones willy-nilly. The good news is, your credit card issuer generally can't open a new account for you without your knowledge. That means having your co-branded card replaced, being shifted to a different credit card by the issuer, or even getting a new account number is unlikely to lower your score. Who knows? You might even get better perks as a result of the change.

Looking for a new credit card? Use NerdWallet's credit card tool to find the best one for your needs.

Virginia C. McGuire is a staff writer at NerdWallet, a personal finance website. Email: Twitter: @vcmcguire.

This story originally appeared on NerdWallet.