7 Things To Know Before You Cancel A Credit Card

Filed Under: Advice, Credit Cards
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We all have different things we’re looking for in credit cards, and over time those things sometimes change, especially in the coronavirus era.

Maybe our spending patterns change, maybe the perks we value change, and in some cases maybe card issuers make changes to cards that are deal-breakers for us.

I have over two dozen credit cards, and whenever an annual fee is due I analyze whether I should keep or cancel the card. If a card isn’t providing ongoing value to me then I don’t keep it.

In this post, I wanted to take a look at how to decide whether to keep or cancel a card, and then what to consider if you do decide to cancel a card.

How to decide whether to keep or cancel a credit card

The way I see it, there are three big factors to consider when applying for a credit card:

  • The acquisition bonus (sign-up bonus, welcome bonus, or new cardmember bonus)
  • The return on everyday spending
  • Perks for simply being a cardmember

Sign-up bonuses can be a great motivator for getting a credit card, though generally those only apply for the first year, so that doesn’t help your ongoing analysis of whether or not a credit card is worth it.

That’s why it makes sense to decide every year whether or not to keep a card. Personally I hold onto cards either for the perks they offer, or for the return on spending that they offer, or in the case of no annual fee cards, for the positive impact they have on my credit score (more on that below).

Let me provide a bit of background on how I go about doing the math on this.

How do I decide whether to keep cards for the perks?

For me, the math is typically quite straightforward about whether cards are worth keeping for the perks. If I got more value out of the perks on a card in the past year than the annual fee, I keep it. If not, I cancel it.

Admittedly coronavirus has adjusted spending patterns and the value of perks, though fortunately, many card issuers have kept up by introducing limited-time perks.

To give a few examples of how I approach the value proposition of cards:

An Admirals Club membership comes in handy

How do I decide whether to keep cards for the rewards?

Perhaps the trickier math comes with cards that I keep for the return on spending that they offer. To crunch the numbers on that, I look at:

  • How many rewards points am I earning for spending on the card?
  • What’s the next best option for that spending?
  • How much is the annual fee that I’m paying?
  • How many perks does the card offer that help offset the annual fee?

Here is one example: The Chase Sapphire Reserve® Card (review) has a $550 annual fee (though this year it’s being discounted by $100 for some), and it’s a card that I’ve historically had primarily for the 3x points on dining and travel that it offers. Right now the card is even offering some limited-time perks, like Chase’s “Pay Yourself Back” feature.

The card offers:

  • A $300 travel credit, which I value more or less at face value
  • A $60 DoorDash credit in each of 2020 and 2021, which I’ve already gotten full use out of for this year
  • A one year Lyft Pink membership, which I’d conservatively value at $100

For this year, I’d estimate I’ve gotten at least $460 of value out of the perks on the card, which is only $90 less than the $550 annual fee. That’s very conservative and doesn’t factor in many of the other perks I’m getting. With the additional $100 credit I’m getting towards the fee this year, I’m already coming out ahead.

On top of that, I’m earning 3x points on dining and travel (and 10x points on Lyft rides, for that matter). When comparing that return on spending to other cards, the math checks out favorably.

The $300 travel credit can be used to outright purchase airline tickets

Advice for canceling credit cards

I figured it would be useful to provide some tips to consider for those who are in a situation where they plan on canceling credit cards. There are some things to be aware of that could potentially save you all your points, or that could even save you on your annual fee.

With that in mind, here are some things to consider when canceling credit cards, in no particular order:

What downgrade options do you have for your credit card?

Outright canceling a card might not always be the best option. If your reason for canceling a card is its annual fee, know that there are sometimes options to downgrade your card to another card that could add value, often one without an annual fee.

For example, if you have the Chase Sapphire Preferred® Card (review) but don’t want to pay the annual fee anymore, you can potentially downgrade the card to the Chase Freedom FlexSM (review) or Chase Freedom Unlimited® (review).

Downgrading to a no annual fee card can often be a good option

Typically the option to downgrade a card is only available if you’ve had a card for at least a year.

Know your options if you’re downgrading. It doesn’t always make sense, but if it’s a card you’ve had for a long time, it could be worthwhile to preserve the account history for the sake of your credit score, as I’ll explain in more detail below.

What happens to your points when you cancel a credit card?

Every point currency works differently, so know what happens to your points if you cancel a card. If you’ve earned hundreds of thousands of points with a credit card over the years it would be awful to cancel your credit card and then find out that all your points are being taken away. Make sure you investigate this before you close your card.

As a general rule of thumb:

To give some examples of the latter situation, if you have the American Express® Gold Card (review) and it’s the only one you have earning Membership Rewards points, you’d lose your points if you close the card

Meanwhile, if you cancel that card but also have the American Express® Green Card (review) linked to the same Membership Rewards account, then you could pool your points and keep all of them.

With bank currencies, you can often pool points across cards

Similarly, Chase has seven cards that they market as “Ultimate Rewards cards”. However, only the Chase Sapphire Reserve®Chase Sapphire Preferred® Card, and/or Ink Business Preferred® Credit Card allow you to transfer points to partners. You can combine points between cards, which you’ll want to do before closing a specific card. Additionally:

  • If you are left without any of the seven UR cards then you’d forfeit all of your points
  • If you only have one of the four no annual fee cards, then your points will suddenly only be worth one cent each, which is way less than the value you can otherwise get out of them (though if you get a premium card in the future, you can move the points to that card for extra value)

Every program is different, though. For example, with Citi, you can pool ThankYou points, but if you close a card and transfer points to another card, they expire 60 days after that transfer happens.

Be sure you know the rules, and remember that you can usually transfer out the points before you cancel the card.

Can you be talked into keeping your credit card?

When you call to cancel your credit card, you’ll most likely be connected to a retention specialist. Depending on the type of customer you are, they may make you an offer to try to get you to keep the card. This could come in the form of a waived annual fee, statement credit, bonus points, a bonus on spending, etc.

This won’t always be offered, but sometimes will be. Before you call to cancel your card, put some thought into what the card is really worth to you, and what it would take to keep you as a customer. That way you’re prepared for the call.

You may be offered some sort of a bonus to keep your card

Did you take advantage of all the benefits of a card?

Lots of credit cards offer great benefits, so make sure you take advantage of all of them before closing down a card. For example, The Platinum Card® from American Express (review) offers a $200 annual airline fee credit, which is based on a calendar year. At the moment the card is even offering a $20 monthly credit for both cell phones and streaming services, so to me that’s a $40 monthly value.

If you decide you no longer want the card mid-year, be sure you already used the airline fee credit (and other benefits) for the year prior to canceling the card.

Take advantage of airline fee credits before canceling Amex Platinum

Did you wait until the annual fee hit to cancel your card?

While there are some exceptions, generally you’re best off waiting until the annual fee posts before canceling a card.

There’s not much downside to keeping the card till the next annual fee posts, because you never know what kind of an offer you’ll get. Credit card companies often have promotions, so the longer you keep your card open, the better the odds of getting such a promotion.

Is there a grace period to cancel your card after the annual fee posts?

If you notice that your annual fee on your card has been billed, you’re not always out of luck.

With most issuers, there’s some grace period where you can cancel the card and still get a refund of the annual fee. With American Express, Chase, and Citi, you typically have 30 days after the annual fee is billed to cancel the card and have the annual fee reversed.

How does canceling a credit card impact your credit score?

In the “Beginner’s Guide To Miles & Points,” we have a section entitled “Credit Cards And Credit Scores.” As explained there, the following factors impact your credit score:

  • 35% of your score is made up of your payment history
  • 30% of your score is your credit utilization
  • 15% of your score is your credit history
  • 10% of your score is made up of the types of credit you use
  • 10% of your score is your request for new credit

Credit score breakdown

Most people don’t understand the little impact that opening and closing credit cards have on your score. If you make your payments on time and don’t utilize too much of your credit, that’s 65% of your score right there. As a result, opening and closing cards impact your score as follows:

  • Opening cards ding you when it comes to your requests for new credit (which is only 10% of your score), but helps you when it comes to your total available credit, and hopefully, your credit utilization, meaning that over time having more cards can improve your score
  • Closing cards potentially alter your total available credit and credit history; if it’s a card you’ve had for a long time and it has a huge credit line, it may impact your score substantially, while if it’s a card only acquired within the past couple of years, it shouldn’t have much of an effect on your score (of course this depends on how many total cards you have, how far back your credit history goes, etc.)

How does coronavirus impact strategy for closing credit cards?

Admittedly the current situation has greatly changed the value proposition of so many credit cards. How should we be approaching the decision to cancel credit cards in light of this?

  • We’ve seen benefits updated on many cards so that the value proposition is still there; for example, the Amex Platinum and Chase Sapphire Reserve have valuable new perks that prevent me from even considering canceling these cards
  • For hotel credit cards with free night benefits, we’ve largely seen the expiration date of benefits extended, to give people more flexibility; to me the value on these cards is so outsized that I won’t be canceling them
  • I think the cards most at-risk are those offering “soft” travel benefits, like airline cards offering priority boarding and free checked bags, since there’s the least value with those right now

My personal strategy is that I’m giving the benefit of the doubt to cards that I’ve had for a long time but that might not necessarily be “shining” this year. I trust that the value proposition will bounce back.

Meanwhile, for cards I haven’t had for long and where the value isn’t there, I’m much more likely to cancel.

For some people, I think there’s also potentially merit to taking a vastly streamlined approach to credit cards. For example, it could make sense to switch everyday spending to something like the Citi® Double Cash Card (review), offering incredible flexibility to earn cash back or travel rewards.

The simplicity of the Citi Double Cash is more worthwhile than ever before

Bottom line

There are lots of valid reasons to want to cancel a credit card, but just be sure you understand what all that entails. Hopefully the above are some useful tips if you find yourself in that situation.

I think the most important points are to be sure that you understand what closing a card means for your credit score (not much, unless you’ve had the card for a long time), know the downgrade options available to you, and know what happens to the rewards that you earned with your card.

The following links will direct you to the rates and fees for mentioned American Express Cards. These include: Hilton Honors American Express Aspire Card (Rates & Fees).

The comments on this page have not been provided, reviewed, approved or otherwise endorsed by any advertiser, and it is not an advertiser's responsibility to ensure posts and/or questions are answered.
  1. To further protect your credit score, it’s also good to transfer the credit line to another card, if the bank allows, before cancelling the card.

  2. @Ben, I was under the impression that, if I downgraded my Citi Prestige to a Citi Double Cashback, even if I also had a ThankYou-rewards-earning card (Citi Premier), I would lose my Citi Prestige ThankYou points in 90 days. I remember reading this on blogs, but can’t right now remember where. Is my impression incorrect? I’m in this situation now and don’t know where to send my Citi Prestige points. I would have said Lifemiles were it not for their financial situation and relatedly, their atrocious refund time period for cancelled award flights during the persisting pandemic.

  3. @ Gerard — Your impression is indeed correct. If you downgraded the card you’d have to transfer the points because they would expire. It would be different if you downgraded to the Citi Rewards+, since that card technically still earns ThankYou points (even if they don’t have the same flexibility if you don’t have it in conjunction with another Citi card).

  4. I transferred my points to Singapore AL good for three years total ..Been home for 6 months first since in 20 years .

  5. I downgraded my Amex Hilton Aspire to the no annual fee Amex Hilton card.
    Once I start traveling again, I’ll switch back. I saw no benefit to keeping the Aspire at this time.

  6. I just recently quit two cards: Barclays Arrival and CSP.

    Tried to downgrade the Barclays but they offered no option. Since I signed up largely for the bonus I didn’t shed many tears.

    Closing the CSP though, they offered me several options for a lower or no-fee card. I thought about it, but considered against the downgrade as I thought that I’d be shooting myself in the foot by not applying and taking whatever bonus was available.

    Curious to get @Lucky’s take or other readers.

  7. One good cancel coming up is the old Hyatt card…I’ll cancel and apply for the WOH card rather than have them automatically upgrade me to WOH

  8. My wife and I went through some tough financial times back in late 2016/early 2017. 30 days late on Amex one time, then a worst payment status of 120 days on a Cap One Card. It sucked at that time. But since then, we have managed to pull ourselves out with the assistance of Tom whom we contact via email on (tom.lawrence114 at g mail com) he helped us clear all debt, removed inquiries, late payment was marked as on time payment and finally add tradeline to our credit simultaneously. We couldn’t had asked for more but we are so indebted about how Tom got us out of this mess

  9. I have a Chase Southwest Airlines Plus card that I’ve had for well over 24 months. I have a zero balance as I pay it off every month. Credit score is in the 850 range. I would like to upgrade to either the Premier or signature card but am wondering how I can get current sign up bonus. Do I really need to cancel this card and then apply for the higher tier card?

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