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Sunday Reader Email Question: Canceling Credit Cards After Redeeming Awards?

by on July 22, 2012 · 21 comments

in Credit Cards, Sunday Reader Questions

TPG reader Jim wrote in with a short but important question about canceling rewards cards and what it means for your credit:

“I just wanted your opinion on whether it is better to keep credit cards open once you have redeemed the rewards, or is it better to cancel them once you feel you won’t use them again?”

There are a few things I always take into account (so to speak) when considering canceling a credit card. Mostly I ask myself, What value am I getting out of this card?

1. Perks: Am I still getting value out of the card perks, like lounge access or free checked bags? For example, I don’t charge much on my Amex Platinum card because there are other cards that give more points per dollar spent, but the perks like lounge access on Delta & American and $200 in airline charges make the card worthwhile. Same goes for my Citi AA cards – I keep one open to get the 10,000 mileage rebates on awards, which more than justifies the $95 annual fee.
2. Points: Am I accruing valuable and flexible points that I can use on multiple alliances? Furthermore, am I earning at good ratios – for example the Sapphire Preferred gives two points per dollar spent on travel and dining and the Amex Premier Rewards gives 3x on airfare and 2x on gas and groceries. See this post on maximizing category spend bonuses.

If a card doesn’t offer me compelling perks or points that outweigh the annual fee, then I will most likely cancel it.

It sounds like you’ve already made your decision on these two counts and want to go ahead and cancel your card.

If you’ve already redeemed the points or miles you earned with it, then at least there’s no chance of those points being taken away and you’re in the clear. In general, you should keep a card open for at least 6 months before closing it, or else the card company may try and clawback the points, though that is rare.

I generally don’t like canceling credit cards because it can lower your credit score. FICO score is based a mix of many different factors, and available credit and average age of accounts are two of them, so if you don’t have a lot of established credit card accounts, it might be a good idea to hang onto a card so your credit score continues to rise.

When you cancel a card, your overall credit line is lowered, potentially also lowering your credit score. There is a workaround here and many banks such as Chase are willing to reallocate credit so you keep your overall credit line–for instance if you had the Chase OnePass Presidential Plus card and the Sapphire Preferred but wanted to cancel the old Presidential Plus card, you could get Chase to move the credit line on the Presidential Plus over to your Sapphire Preferred. American Express also allows consumer credit cardholders to re-allocate their credit lines between cards.

One of the other reasons people often consider canceling credit cards is to avoid hefty annual fees. There are plenty of great travel rewards cards without annual fees, but many travel credit cards do have them, and if you have a few of these cards, those fees can get expensive fast. If you’re trying to avoid them, you can call your bank and let them know you want to cancel, but you’ll keep the card open if they waive the annual fee. Some credit card companies (like Citi) have retention teams that will waive annual fees or give big bonuses to keep you as a cardholder. Chase and Amex are less lenient with waiving annual fees, but it never hurts to ask. If they refuse to waive the annual fee, try to downgrade to a card that has no annual fee. Most card companies will prorate the annual fee when you cancel the card. If you can’t do either of the above options, or just aren’t interested, just close the account. It’s not the end of the world. However, don’t close a ton of accounts in one month because you don’t want red flags to be raised or your FICO score to shift drastically. And as always, be aware of your credit score and make sure that you are always acting in the best interest of keeping it healthy and high since good credit is the key to a great points strategy.

Disclaimer: This content is not provided or commissioned by the credit card issuer. Opinions expressed here are author.s alone, not those of the credit card issuer, and have not been reviewed, approved or otherwise endorsed by the credit card issuer. This site may be compensated through the credit card issuer Affiliate Program.

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  • Chister

    Thanks for the excellent analysis. 10% redeemed miles back looks like a new perk.

  • Mwwalk

    How does this change if it is a business card. I have the Delta gold business but only got it for the bonus. Should I keep it to protect my score, or cancel it to save the fee? Are there no-fee cards from AMEX I could switch to?

  • Grant

    I like the SPG Amex because the annual fee is only $65 and you can transfer points to many airlines and redeem for great hotel rooms

  • Jan

    I applied for the AMEX PLAT in August 2011 . One benefit is the SPG Gold Status which expires 2/28/2013. If I should cancel my AMEX Plat as the annual fee is coming up, would I be able to keep the Gold Status till it expires in 2/2013 or would it be cancelled by AMEX immediately?

  • Santastico

    After getting 100,000 points from the Chase British Airways card I kept it for almost 1 year and called Chase to cancel right before they charge the annual membership fee for the card. No issues at all. I was able to transfer the credit limit from the Chase BA to my Chase Sapphire Preferred and my credit score did not move 1 point.

  • davidingotham

    Do you find that you are able to get the bonus again once you cancel. For example, if I cancel all my American Airlines related cards, would I be able to get the bonus again and how long would I have to wait?

  • arcticbull

    Agreed. I don’t even plan to fight them over the fee since it’s so small. Now my Premier Rewards Gold on the other hand… :D

  • thepointsguy

    Its different with each issuers. With Citi the rule of thumb is about 18 months after closing the card, Amex ~2 years, Chase usually not for the same exact card/offer but they create so many new products its not much of an issue. BOA you can get the same card many times- often after 3-6 months of the last card.

  • thepointsguy

    You will probably keep it until 2013- I don’t think Amex notifies Starwood, but im not 100% sure- maybe others can comment, since i’ve never canceled my Platinum

  • thepointsguy

    Yea- I’ve never had an SPG Amex- getting one soon!

  • thepointsguy

    Business credit lines are separate from personal and they don’t affect your personal score from a utilization perspective, so even if you closed a huge business line you shouldn’t see a negative effect

  • thepointsguy

    10% if a great perk often overlooked!

  • PJ

    I dont see you can have a good excuse for not having had it after saying so oftenso many times : I am loving it :)

    You could have used my 10K referral bonus link so I could have returned you the 10K gift from “What credit cards in your Wallet ” contest.. going long 10K on SPG is better off than going long 10K on United or Sapphire Preferred.

    I scored 12 nights at LAX Sheraton Gateway for 3K on weekends before the hotel got upgraded to 7K per night. Isn’t that cheaper than Motel 6?

    SPG Rocks!! SPG card is the one I use on 1% rebate category when Amex card is welcome ; the current card is the 3rd one we are filling 5K/6months spend to get 25 K plus 5 K referral bonus .

  • James

    Can someone elaborate on what this is?

    ” I keep one open to get the 10,000 mileage rebates on awards..”

    Thanks!

  • Megan

    I thought that you could get another Citi AAdvantage card 18 months after your last card application, not card cancellation? I got in on the 75,000 bonus offers last year and was planning to cancel the cards if I don’t get a good retention offer, but I might reconsider if this means I can’t apply for a Citi AAdvantage card for another 18 months…

  • davidingotham

    If the necessary wait period between cancellation and application hasn’t expired do they just refuse the card or do they give it to you without awarding the bonus (I don’t want to inadveratntly get it, effectively re-setting the 18 month wait, without receiving the bonus).

  • http://twitter.com/jmvnice Jean-Maximilien

    Excellent post!

    I’ve got one question: I’ve booked a flight in december (charged on my Amex Gold). If I cancel the card on October, what about the insurances (flight delay, lost baggage…)? Will they be honored by Amex or the insurance company (I think it’s RBC in Canada)?

  • Husarm

    I have a different ? when applying Citi now wants a 4506-t – I am willing to send but I do not think I will be approved as a human is looking at this & I already have a CITI Premier Visa & this is a CITI PREMIER MC.
    Do I send it in & risk being not approved or do I just call & cancel the application? Meaning is there a negative report on my credit report for not being approved (never happened yet so i don’t know). Usually I limit inquiries to a few every month. But is a denial an extra hit sort of??

  • Ruth

    “Same goes for my Citi AA cards – I keep one open to get the 10,000 mileage rebates on awards” —
    That’s my question too: I know about the Citi AA Reduced Mileage Awards but those are a handful of destinations each quarter. Is there a general 10k reduction with the AA Citi card I have overlooked?

  • http://twitter.com/ScottiMac707 Scott McMillan

    I agree with TPG, I don’t think Amex notifies SPG, and they don’t take away your 2 free stay credits either,

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