What to Do Before You Close a Credit Card

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Here at TPG we spend an incredible amount of time talking about which credit cards you should open, which cards pair well together and even how to build an overarching credit card strategy. An equally important topic that rarely gets as much attention is when and why you should consider closing your credit cards.

Most of us apply for a number of credit cards we plan to keep open indefinitely thanks to a low (or no) annual fee and the valuable bonus categories or benefits. With some cards, however, we simply want the welcome bonus and have no plan to keep them long term. Your strategy for closing cards deserves as much attention as your strategy for opening them, so today we'll walk through everything you need to know before you make this decision.

Why You Should (And Shouldn't) Close a Credit Card

This might seem rather obvious, but the only reason you should close a credit card is if you're spending more on annual fees than you're getting in return. Cards like the Marriott Bonvoy Brilliant® American Express® Card are expensive (with a $450 annual fee; see rates & fees), but I get much more than that in value each year between the up to $300 Marriott property statement credit on eligible purchases at hotels participating in the Marriott Bonvoy program and the up to 50,000-point, anniversary free night. This card is in my long-term "keep" pile. If I were to stop traveling as much and lose my Marriott elite status, I might change my mind.

If your card doesn't have an annual fee, you should keep it open even if you don't use it that often because 15% of your credit score is determined by your length-of-credit history. If it doesn't cost you anything to keep a card open, you shouldn't close it. Even keeping it in your sock drawer and not using it will help strengthen your credit score over time, though you should put at least one charge on it every now and then so it doesn't get closed for inactivity.

What To Do Instead Of Closing Your Card

Even if the math has shifted and you're no longer getting enough value to keep a card open (or you simply don't want to pay the annual fee anymore), there are a few things to consider before you close the account.

Can You Downgrade or Change Cards?

If your primary concern is not paying an annual fee, some issuers will let you downgrade or change your card to a version that doesn't have an annual fee. For example, you could downgrade a Chase Sapphire Reserve to a no-annual-fee Chase Freedom Unlimited. Just remember you'll want to keep at least one Chase Ultimate Rewards-earning card (either a Sapphire or Ink Preferred) in order to turn the rewards on your Freedom Unlimited into transferable Ultimate Rewards points.

Each issuer has its own rules on product changes. With Chase you'll need to wait until the account is at least one year old. This strategy is also a little harder with cobranded airline and hotel credit cards, as you're generally only allowed to "product change" within the same family. For example, American Express offers a few no-annual-fee cards for you to choose from, but you won't be able to downgrade your Marriott Bonvoy Amex to any of them since they're all in different product lines.

Make Sure You Ask For a Retention Offer

If a credit-card issuer is giving you a welcome bonus of 50,000+ points to open a new card, they'll want to keep your business, especially if you continue to spend regularly on your card after that three-month introductory period is over. Even if you're 99% sure you want to cancel a credit card, it can't hurt to ask about the possibility of an annual-fee waiver or a retention offer.

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It seems crazy to think that a giant corporation is going to waive your fees simply because you ask, but it's entirely possible. It's like renegotiating your cable bill. All you have to do is threaten to walk away and suddenly a "new limited-time offer" is likely to appear on your account. I've used this strategy successfully a number of times, though it doesn't always work and you certainly aren't entitled to anything.

I've been offered anything from a discounted annual fee to a bonus -- even the ability to earn bonus points by spending a certain amount on my card. Of course you'll have to do the math: 10,000 Marriott points (worth $80 based on TPG's valuations) might not be enough to offset your annual fee, but in the good old pre-merger days when Amex would offer 10,000 SPG points (worth 30,000 Marriott points) it was an easy decision to keep my card open.

I find that these conversations go well if you can clearly explain to the agents on the phone exactly why you like the card. They'll try to give you one last sales pitch before you close, so you can pre-empt them by explaining how much you love the bonus categories (be specific), elite status perks, annual statement credits and more. You'll need to be explicit to make sure they understand what you're asking. I usually say something along the lines of "I love X, Y and Z perks but I'm just not sure I can justify paying the annual fee on this card for another year. I was wondering if there were any retention offers on my account, or if it might be possible to get an annual-fee waiver." You need to call in to cancel most credit cards anyway so the extra two minutes spent asking this question are well worth the time.

If You Decide To Close...

If you're trying to clear out a wallet overstuffed with credit cards that you opened for the welcome bonuses or you find yourself spending too much on annual fees each year and need to downsize, you may want to close a card no matter what other offers are available. If you do decide to close your account, there are a few things you should think about first.

Timing Is Everything

Before you close a credit card, you should double-check that you've maxed out every available benefit. If your card offers annual statement credits, find a way to use those up. Understand that if your card offers a free-night certificate that hasn't posted to your account yet, you'll forfeit it by closing the card. You also should seek to maximize lesser-known perks of the card, like the annual Saks Fifth Avenue statement credit on The Platinum Card® from American Express (enrollment required). You might've forgotten about it while focusing on redeeming your Membership Rewards and checking out as many Centurion lounges as possible, but you already paid for it so you might as well use it.

While we're on the topic of American Express, there's another factor you should consider when it comes to timing. Since Amex introduced its pop-up welcome-bonus eligibility checker, many people have found out that they were ineligible to receive bonuses on cards they'd never held before. No one knows exactly what triggers this algorithm, but people have reported over and over that closing Amex cards at or before the one-year mark has resulted in the loss of eligibility for future bonuses. It's easy for Amex to see that quick cancellations constitute a pattern of credit-card turnover, something valuable long-term customers wouldn't do. I would strongly consider holding all of your Amex cards for at least two years. It might feel silly to pay an annual fee on a card you don't want or use, but it's a small price to stay eligible for future bonuses that might be worth $1,000 or more.

Bottom Line

When, how and why to close a credit card is a topic that often doesn't get enough attention. There are several factors to consider, including the impact on your credit score, your relationship with the issuer, why you want to close and whether product-changing to a no-annual-fee version or seeking a retention offer might be a better option. No matter what you choose, this should be a well-thought-out part of your overall card strategy.

For rates and fees of the Marriott Bonvoy Brilliant Amex, click here.