Canceling A Credit Card? 7 Things To Consider…

Canceling A Credit Card? 7 Things To Consider…

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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 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.

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?

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

For the card’s annual fee I’m receiving:

It can be hard to do exact math here. though I’d say that I value the $300 annual travel credit and up to $60 in DoorDash credits more or less at face value, so the card is really costing me less than $200 per year. Then I consider all the other benefits I get on the card, which I think round out the value pretty well, not even factoring in the points bonus categories.

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, below 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 that last point, 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 are marketed as earning Ultimate Rewards points. 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 Ultimate Rewards 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 may 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 (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 offers or benefits your card may offer. 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 somewhere around 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 “How Credit Scores Work.” 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 (minimal) 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 impact your score as follows:

  • Opening cards hurts 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 lowers your total available credit, and eventually 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.

If you’ve canceled credit cards over time, any important tips that I missed?

Conversations (8)
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  1. Polly French Guest

    I’ve had my credit card for 14 months. It was a starter credit card and I was able to build up a very good score with it. I now want to apply for something that will provide me with a lot more useful cash back. Should I cancel my old card or just stop using it? I don’t want to ruin my good score.

  2. iamhere Guest

    I think there are a few things to consider.
    1. Credit. If I am unable to push the credit to other cards with the same bank then I may be more likely to renew because I do not want to lose the credit on that card
    2. Benefits. Do I get enough benefits from the card to make it worth the annual fee. This can be reduced or eliminated if I use various...

    I think there are a few things to consider.
    1. Credit. If I am unable to push the credit to other cards with the same bank then I may be more likely to renew because I do not want to lose the credit on that card
    2. Benefits. Do I get enough benefits from the card to make it worth the annual fee. This can be reduced or eliminated if I use various promotions and other benefits
    3. Are my points worth more for having the card or does it give me special allowances with a loyalty program and what is that worth?
    For example, being able to redeem Chase points at a 50% bonus for pay yourself back or the travel center is useful as the Reserve card is not costing that much due to the travel credit and other benefits. If you have enough Chase points the difference can make up for this.
    Marriott and obtaining 30 nights for holding a business and personal card is useful as then only 20 nights or less are required to maintain Platinum. Could be less if a double points promotion.

  3. NYGuy24 Gold

    Basically anytime the renewal date hits I look at several things.
    1. Does the card have an annual fee? If not chances are I will keep it unless I need to free up a card slot because the lender only allows X number of cards with their company,
    2. Do the bonus categories on the spend justify the AF compared to what I can get with other cards,
    3. As mentioned in...

    Basically anytime the renewal date hits I look at several things.
    1. Does the card have an annual fee? If not chances are I will keep it unless I need to free up a card slot because the lender only allows X number of cards with their company,
    2. Do the bonus categories on the spend justify the AF compared to what I can get with other cards,
    3. As mentioned in the article the perks and if they offset the AF (these need to be perks that I would normally use)
    4. What if any retention offers are on the account (I also consider if the card is churnable and if I close it can I get a new signup bonus for the same card in the future)
    5. If I decide not to keep an annual fee card I will try to downgrade it to a no AF card to see maybe if it triggers a signup bonus for an upgrade in the future and to help with my overall account age and available credit.

  4. Regis Guest

    I cancelled my Amex Delta Gold yesterday using the automated phone system - did not talk to an agent/retention specialist at all. I routinely cancel cards to free up space in my credit for new card sign up bonuses, especially the <$100 annual fee airline cards that don't offer meaninful perks. If you get card rejection letters saying you have too many accounts open, be not fearful of closing some, the impact on credit scores are minimal.

  5. Rodney Guest

    I just applied for an Amex Gold and was rejected due to too many recent cards canceled. I had canceled one card about two months ago and my most recent canceled before that was 18 months prior. It appears Amex doesn't want to see any canceled cards on your credit report, I am guessing within the past three months?

    1. NYGuy24 Gold

      How many amex cards do you have? I have never had that issue but I have been with them for years. I cancel some cards but I downgrade or hold on to quite a few others.

  6. jmd001 Guest

    If you want to cancel a card, but still have another card from the same company, you might be able to add the credit line from the card being closed to a separate existing card with the company. I've done it with Chase. YMMV.

  7. Nick Guest

    If downgrading from CSR to CSP, will CUR points be transferred automatically? If not, please advise.

Featured Comments Most helpful comments ( as chosen by the OMAAT community ).

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.

NYGuy24 Gold

Basically anytime the renewal date hits I look at several things. 1. Does the card have an annual fee? If not chances are I will keep it unless I need to free up a card slot because the lender only allows X number of cards with their company, 2. Do the bonus categories on the spend justify the AF compared to what I can get with other cards, 3. As mentioned in the article the perks and if they offset the AF (these need to be perks that I would normally use) 4. What if any retention offers are on the account (I also consider if the card is churnable and if I close it can I get a new signup bonus for the same card in the future) 5. If I decide not to keep an annual fee card I will try to downgrade it to a no AF card to see maybe if it triggers a signup bonus for an upgrade in the future and to help with my overall account age and available credit.

1
Polly French Guest

I’ve had my credit card for 14 months. It was a starter credit card and I was able to build up a very good score with it. I now want to apply for something that will provide me with a lot more useful cash back. Should I cancel my old card or just stop using it? I don’t want to ruin my good score.

0
iamhere Guest

I think there are a few things to consider. 1. Credit. If I am unable to push the credit to other cards with the same bank then I may be more likely to renew because I do not want to lose the credit on that card 2. Benefits. Do I get enough benefits from the card to make it worth the annual fee. This can be reduced or eliminated if I use various promotions and other benefits 3. Are my points worth more for having the card or does it give me special allowances with a loyalty program and what is that worth? For example, being able to redeem Chase points at a 50% bonus for pay yourself back or the travel center is useful as the Reserve card is not costing that much due to the travel credit and other benefits. If you have enough Chase points the difference can make up for this. Marriott and obtaining 30 nights for holding a business and personal card is useful as then only 20 nights or less are required to maintain Platinum. Could be less if a double points promotion.

0
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