Sunday Reader Question: Do I Lose Points if I Cancel a Credit Card?

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Happy 2012! If you haven’t done so already, today is a great time to assess your points strategy and chart goals for 2012. I’ll be blogging about my strategy this week, which will involve closing and opening some new credit cards.

On that topic, TPG reader Bill writes:

“I just passed my anniversary date on my American Express Premier Rewards Gold card at the beginning of December and I was charged the $175 annual fee. I know I still have about 15,000 MR points pending, which have not yet posted to my account. As of today, I have 99,000 Membership Rewards points posted and available.

With that in mind, I would like to either cancel the card or downgrade to a card without an annual fee in order to save me from paying the full $175 dollars.

So my question is, if I cancel or downgrade, will I forfeit my current points (the 99k) as well as the pending points? Will I need to transfer everything out at this point before canceling or downgrading? (the thing is that I’m not really sure where I would want to transfer those points to). Any suggestions as to how to best approach the situation?”

As a general rule of thumb, I recommend using or transferring points from any credit card points program if you are going to cancel the card. As far as airline and hotel branded credit cards, those points earned go directly into your personal frequent flyer/guest account, so you don’t need to use them when you cancel the credit card (my only advice is to keep the card open for at least 6 months because the card companies may take back the points earned if you cancel too soon).

In your situation, I’d first call American Express and ask them to post your pending points. As long as your bill is paid they should be able to do that as a courtesy. I’ve done it on many occasions and never had an issue.

As far as switching to a card with no fee, there isn’t a Membership Rewards card with no annual fee that will still allow you to transfer your points to airlines. You can switch to the no annual fee Amex Blue card, however your points will only be able to be used for gift cards/travel at 1 cent per point. However, at a later time you can upgrade back to a full-fledged Membership Rewards card like the Platinum or Gold card, those points will then become transferable again to airlines. This works even if you’ve always had the Blue card and then upgrade to a premium card – all of those points become transferable, which in my opinion is where the real value is with Amex points – especially if you know how to take advantage of transfer bonuses like the current British Airways and Delta 30%  offers.

Amex points are valuable because you can use them when you need them, so by preemptively transferring them you lose that flexibility to top up your frequent flyer accounts. However, Amex will prorate your annual fee, so if you decide to use those points and cancel your card, you will get most of that $175 annual fee rebated to you.

Opening and closing credit cards does have an impact on your credit score (though generally much less than most people think), so check out the following related posts: Video Blog Post: When Should I Cancel My Credit Card?, Understanding How Your Credit Score Works.

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