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“Reader Questions” are answered twice a week by TPG Senior Points & Miles Contributor Ethan Steinberg.
By the time you’re well into your tenure as an award traveler, your wallet is likely split into two groups. You have everyday cards (like the Chase Sapphire Reserve) which you swipe frequently to take advantage of their generous bonus categories, and you probably have other cards you rarely use. TPG reader Rick wants to know if he should cancel these cards or keep them open …
I have an Amex EveryDay and EveryDay Preferred, both about a year old. Would it be wise to cancel them since I don’t use them much anymore? My concern is what this will do to my credit score and whether it will flag my account with Amex.TPG READER RICK
Opening or closing a credit card is not something you should do lightly, and Rick is spot on for thinking about the consequences of this decision. There are a few things he’ll want to consider. The first involves one of the most important aspects of your credit score: your amounts owed (frequently referred to as your utilization rate). At its core, this is all about how much of your overall available credit you are using, which makes up 30% of your FICO score. If these cards make up a large portion of Rick’s current credit, closing one or both of them would have a massive impact on his score.
As an example, let’s say that Rick’s currently has combined credit lines of $100,000 across all of his card accounts. At any given time, he has a average of $5,000 worth of balances among these cards, though he of course pays them in full each month. That gives him a utilization rate of 5% ($5,000 ÷ $100,000). If both of the cards above have $5,000 credit lines, the impact of closing both of them isn’t too significant — $5,000 ÷ $90,000 = 5.56%. However, if each card has credit lines of $30,000, the impact is much more significant. He’d still have the same balances ($5,000) but would now have that spread over just $40,000 of available credit. His utilization thus jumps from 5% to 12.5%. That’s not a danger zone for issuers, but it could impact his score.
Beyond the credit score, Rick also needs to look at the annual fees on his cards to ensure the out-of-pocket costs are more than offset by the earning rates and benefits. For example, The Amex EveryDay® Preferred Credit Card from American Express has a $95 annual fee, and while he might be able to recoup that cost by taking advantage of one or two Amex Offers each year, it generally doesn’t make sense to pay a fee on a card that you don’t use. The exception would be a card like The Platinum Card® from American Express, as the benefits alone make it worthwhile for many.
One option that many EveryDay Preferred cardholders utilize is to downgrade their cards to the no annual fee Amex EveryDay® Credit Card, which would preserve your account history and credit lines while saving $95 a year. While Rick already has the no annual fee version, he may have luck downgrading to another card like the Blue Cash Everyday® Card from American Express.
The information for the Amex EveryDay Preferred Card, Amex EveryDay Card, and Blue Cash Everyday card has been collected independently by The Points Guy. The card details on this page have not been reviewed or provided by the card issuer.
A similar strategy applies to those who have the Chase Sapphire Reserve or Chase Sapphire Preferred Card. While both cards offer compelling value propositions for many travelers, you may want to downgrade to a no annual fee Chase Freedom or Chase Freedom Unlimited. This could also be a good option if you have the Sapphire Preferred and are ready to get the Sapphire Reserve, as Chase no longer allows you to hold both (and requires you to go at least 48 months between earning sign-up bonuses).
Once you’ve gone through this process, it usually makes sense to keep your cards open. If it costs you nothing to keep a card open but can help strengthen your credit score, that’s a no-brainer. However, I’d strongly encourage you to put a small charge on the card every six months or so to keep the issuer from closing the account due to inactivity. If you’re serious about racking up as many points and miles as possible, no annual fee cards should play a role in your strategy, as you can keep them open forever to keep your credit score nice and strong.
Despite all of this, there are a few instances you may want to consider closing cards you don’t use (to make way for new ones, of course). Some issuers limit the number of cards they’ll give you at any one time, such as Capital One, which only allows you to have two personal Capital One cards. On the other hand, Amex recently added additional language to the application pages for its cards, including the following related to welcome bonuses:
“Welcome offer not available to applicants who have or have had this Card or the Premier Rewards Gold Card. We may also consider the number of American Express Cards you have opened and closed as well as other factors in making a decision on your welcome offer eligibility.”
While there’s no way to know for sure, Rick is right that closing credit cards around the one-year mark may flag his Amex account and cause him to be denied future welcome bonuses.
For full details, check out our Ultimate Guide to Credit Card Application Restrictions.
While it’s easy to evaluate which welcome bonuses are worth pursuing, it can be harder to decide which cards belong in your wallet year after year. Benefits change, transfer partners change and the strategy you initially used might no longer make sense. You should absolutely avoid paying annual fees on a card you don’t use, but other than that, it helps your credit score to keep existing accounts open as long as possible.
Featured photo by Stella / Getty Images
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