Here’s why you should never close your credit cards before the one-year mark
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One of the biggest mistakes I see people making when they begin their points-and-miles journey is to rapidly open tons of travel rewards credit cards without any plan for what they’re going to do with them. Some cards might entice you with a large welcome bonus and others will be long-term keepers, but it’s possible that after 11 months of using the card and experiencing its benefits, you might change your mind about it before the annual fee comes due.
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So then, is it OK to cancel a credit card before a first account anniversary?
This is one of the most common questions we receive, especially right now as people are still looking to minimize their out-of-pocket costs as they’ve felt the financial strain from the pandemic.
The answer is worth repeating loud and clear: Never, under any circumstances, should you close a credit card less than one year after opening it. There are many reasons why this is a bad idea, but let’s start with some of the consequences you might expect if you do this.
Why you should keep your credit cards open for more than a year
Here’s the thing: There is nothing remotely illegal or even fishy about closing a credit card within 12 months of account opening. Many cards offer a waived annual fee the first year for this very reason. They want a consumer to try their card out with zero risk. If the customer doesn’t like it or finds it does not serve their lifestyle, they can cancel the card, having lost nothing.
However, it doesn’t really matter how pure your intentions are. If the bank suspects you’re trying to take advantage of them (perhaps by opening a card just for the welcome bonus), they may take action against you. As an example, let’s look at the terms and conditions of the Delta SkyMiles® Platinum American Express Card. Nearly every Amex card contains similar language in their terms (emphasis mine):
“If we in our sole discretion determine that you have engaged in abuse, misuse, or gaming in connection with the welcome offer in any way or that you intend to do so (for example, if you applied for one or more cards to obtain a welcome offer (s) that we did not intend for you; if you cancel or downgrade your account within 12 months after acquiring it; or if you cancel or return purchases you made to meet the Threshold Amount), we may not credit the welcome offer to, we may freeze the welcome offer credited to, or we may take away the welcome offer from your account. We may also cancel this Card account and other Card accounts you may have with us.”
There’s plenty of legalese in the terms and conditions of a credit card application, but if you’re wondering whether Amex is serious about this bit, I can tell you that they are. Over the last few years, we’ve seen countless crackdowns and points clawbacks for people trying to skirt the rules in various ways, including self-referring to Amex cards and abusing limited time bonus categories, to name a few.
I’ve already spent my welcome bonus — am I safe?
In the past, we’ve seen Amex take Membership Rewards balances into the negative when clawing back bonuses that had already been spent. The terms are clear that you might face other disciplinary action, including the closure of your other Amex accounts. Simply put, this is not worth the risk.
I don’t want to pay the annual fee again. What should I do?
There’s actually no reason to close a card early instead of waiting until the annual fee posts. Most issuers give you a grace period of ~30 days or so after the fee posts, during which you can get the fee refunded if you decide to cancel the card. Even if someone is 100% sure they’re going to close their card, they should wait until a week or so after the annual fee posts to do it.
Issuers discouraging the appearance of “gaming”
When I’m analyzing my Amex cards each year and deciding which ones to keep and which ones to close, there’s another factor I consider. Amex now includes a “welcome bonus eligibility” checker that may pop up during your application and alert you that you’re ineligible to receive a bonus, even if on paper you’ve done everything right (you’ve never had that specific card before, etc.). You’ll find this alluded to in the card’s terms and conditions right above the line we just looked at (again, emphasis mine):
“Welcome offer not available to applicants who have or have had this 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.“
Amex and other issuers have clearly been making moves to discourage people who are opening credit cards just for the bonuses and not growing into valuable long-term customers. While we don’t know exactly what Amex’s bonus eligibility algorithm looks for, one common report we’ve heard is that people who close cards at the one-year mark (i.e., right after the annual fee posts) find themselves ineligible to apply for more Amex cards in the future.
This means that when I apply for an Amex card, I plan on keeping it for at least two years, even if I’m primarily interested in the welcome bonus. This makes me a bit more selective, as I only pick valuable cards to justify two years’ worth of annual fees. Potential cardmembers should take a hard look at the benefits of each card because often, a card’s perks can help offset the annual fee.
Be kind to your credit score
The above points are to say nothing of the potential impact to your credit score from closing cards earlier than necessary.
While a few months aren’t likely to make a huge difference in the grand scheme of things, 15% of your credit score is based on your length of credit history or the age of accounts. The longer you keep cards open, the more they’ll boost your credit score. This means that you should always wait until the last possible moment to close a credit card and make sure you’ve exhausted all other options first.
While there’s nothing wrong with opening a credit card primarily for the short-term benefit of the welcome bonus, you should never, under any circumstances, close that card before your first account anniversary. Even then, understand that if you make a habit out of closing cards after exactly 12 months, you might find yourself ineligible for future bonuses or getting your applications denied.
Featured photo by Olleg/Shutterstock
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