7 Things To Know Before You Cancel A Credit Card

Filed Under: Advice, Credit Cards
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Update: This article contains mentions of Chase Freedom Unlimited® and Chase Freedom® whose terms have expired and are in the process of being updated. All other offers reflect accurate offer terms. Learn more about the current offers here.


We all have different things we’re looking for in credit cards, and over time those things sometimes change. 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 credit card

The way I see it, there are three big factors to consider when applying for a credit card — the acquisition bonus, the return on everyday spending, and the perks.

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 (I’ll talk more about that last point further down).

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.

To give a few examples:

An Admirals Club membership comes in handy, given how much I fly American

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?

Let me give one example. The Chase Sapphire Reserve® Card (review) has a $550 annual fee, and it’s a card I have primarily for the 3x points on dining and travel that it offers.

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.

For 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® Card (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 make sense to try 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 credit card?

Every points currency works differently, so know what happens to your points if you cancel a card. If you’re 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

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.

If you decide you no longer want the card mid-year, be sure you already used the airline fee credit 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 has 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 impacts your score as follows:

  • Opening cards dings 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 alters 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.)

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.

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Comments
  1. I have the CSP since 2013. If I downgrade to the Chase Freedom Unlimited, do I still qualify for the CSP bonus points should I apply for the CSP at a later date? Is there a soft pull or hard pull to downgrade to Chase Freedom.

  2. I had 26 credit cards and just wanted to simplify things. Over a 6 month period I got rid of 11. Some had AFs, but many did not. I still have a good amount of open credit line and all the cards I cut were newer than the average age (so the average age went up).

    So, I am at 15, and two others are leaving of March (bank closing for inactivity). Both those are also newer than average age and I’ll still have no problems with credit utilization.

    Meanwhile both scores on Credit Karma are up a few points.

  3. Thanks for this post! Very timely! I’m ditching the CSR since the new “benefits” are worthless to me and can’t justify the card, especially in light of the $100 increase. If they waive the $100 increase I might keep it for another year, but I’ve switched most of my travel over to another card so I’m good either way.

  4. Weighing the relative cost of the perks can be difficult, especially due to how fast they change. I got the AmEx business plat for the WeWork access, and then ultimately decided not to keep it another year due to the recent fee increase. I ended up cancelling it (did not get any retention offer) – shortly afterwards, WeWork arbitrarily extended my Global Access Membership for another year. Hilton also extended gold status another year.

  5. I plan to get the SWA Companion Pass this January. I have a personal SW card which I received over 2 years ago. It is my understanding that I cannot have 2 personal cards, therefore I must cancel the card I have. If this is correct, do I just call and cancel ? The sooner, the better?

  6. I recently acquired the Spirit MC. I have been using Spirit for those occasional one-ways where it saves me lots of money vs. UA or AA even after purchasing a Big Front Seat (bags can be taken care of many ways including buying the new bundle (which includes the seat upgrade or sending a bag home by Fedex Ground on a return flight).

    I have discovered, however that Spirit miles, which expire in 10 minutes unless you have the card, are virtually useless. 27,000 miles saves $29.00 net on a one way to BOS so why bother! , This card, which has no other benefits, will be cancelled upon its first renewal.

  7. I have the Amex Bonvoy Premium card and a few questions as I want to downgrade or cancel this card within the next 30 days (anniversary hit yesterday):
    1. Does the $300/yr statement credit apply to Marriott Gift Card Purchases?
    2. If yes, and I wait for the credit to post and then cancel/downgrade before paying the annual fee, do I lose the credit?
    3. What is the best option with Amex to keep the CL open? The only downgrade option is the $95/yr card and I would rather transfer the CL to another Amex card.

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