Video Blog Post: When Should I Cancel My Credit Card?
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One of the most frequently asked questions that I get is, “When do I cancel my credit cards?” I filmed a short video while recently at the Andaz West Hollywood to answer this question, however I’ll recap my thoughts below for those who don’t feel like watching. (Pardon the background music in the video – we had turned the speakers down, but the camera still picked up a good amount of background noise).
1) First assess each card to see if it’s worth retaining it. I generally look for two things from my cards:
a) Perks – do I get value out of perks, like lounge access
b) 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 Premier Rewards Gold Card from American Express gives 3x on airfare and 2x at US gas stations and US supermarkets. See this post on maximizing category spend bonuses.
I generally don’t like canceling cards because it can hurt your credit score because your FICO score is based a mix of many different factors and available credit and average age of accounts are two of them. However, your score isn’t going to get ruined forever for closing accounts and it certainly doesn’t make sense to pay hefty annual fees for numerous cards. If you decide you no longer want a card, here are some tips:
1) Call and let them know you want to cancel, but you’ll keep it 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.
2) If they refuse to waive the annual fee, try to downgrade to a card that has no annual fee. FYI most card companies will prorate the annual fee when you cancel the card.
3) If you can’t do either of the above options, 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. Make sure you use/transfer all of your points before you cancel a card. I’d also recommend waiting at least 6 months to cancel a card because the card companies can technically take your miles back if you cancel right away, though it’s rare. It’s better to be safe than sorry.