Should You Keep Credit Cards After First Year?

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I’ve received a handful of comments on the blog in the last week alone asking how I handle credit cards when the first year’s annual fee comes due. The questions are mostly similar to this one, asked by Amy on the Ask Lucky page of the blog:

Lucky, do you cancel the cards after the initial year? as quite a few of them have annual fees afterwards. I heard that one’s first card should be kept for life, is that so?

The way I see it, there a couple of separate questions here:

  • Do you keep a card after the first year, and if so, how do you decide which to keep?
  • Should you hold onto the first credit card you ever got forever?

I’ve answered both of these questions at least in passing in past posts, but figured I’d address them directly in this post:

How do you decide whether to keep a credit card past the first year?

A lot of credit cards waive their annual fee for the first year, as a way of letting you try their product with limited downside. Think of it as a test drive… and the (often) generous sign-up bonuses don’t hurt either!

But what do you do after the first year, once you’ve earned the sign-up bonus and have taken the card for a spin? How do you decide whether to keep a card or not?

There are two general reasons I’d keep a card past the first year:

The points I earn for everyday spend

After the first year I’ll crunch the numbers as to the return I’m getting on everyday spend. For example, the Chase Sapphire Preferred® Card offers double points on dining and travel and has no foreign transaction fees. Since I live in hotels, a vast majority of my spend fits into one of those bonus categories.

Therefore the $95 annual fee on the card is more than worth it to me, given how many bonus points I’m earning on the card.

Dominos
Earn double points on gourmet Italian cuisine with the Chase Sapphire Preferred!

Everyone has to crunch the numbers on each card for themselves to decide whether a card is worth keeping or not.

The annual perks

There are over a dozen credit cards I pay annual fees on, and the reason I keep a vast majority of those cards are because of the annual perks that come with them. Heck, I have many cards I pay an annual fee on which I don’t actually put a dime of spend on.

Many hotel credit cards offer annual free night certificates, which more than justify the annual fee. That’s why I’m happy to pay the $75 annual fee on the The Hyatt Credit Card, since I get a free annual night at a Category 1-4 Gold Passport property every year, which is worth way more than $75 to me.

Park-Hyatt-Seoul-09
Redeem a Hyatt Visa free night certificate at the Park Hyatt Seoul

Other cards offer status just for being a cardmember. For example, the Citi® Hilton HHonors™ Reserve Card gives you Hilton HHonors Gold status for as long as you have the card, which I find to be among the most valuable mid-tier hotel status levels out there. Just for being a Gold member you receive complimentary lounge access/breakfast and internet.

Conrad-Hong-Kong-Club-Lounge
Access the club lounge at the Conrad Hong Kong as a Hilton Gold member

Again, everyone has to crunch the numbers for themselves, since we all value things differently.

How much is a free night certificate worth if you won’t have time to use it next year? Zero. How much is it worth if you can redeem it at the Park Hyatt Seoul? A lot more than $75.

How much is Hilton Gold status worth if you don’t plan on making any Hilton stays next year? Zero. How much is it worth if you plan on making 20+ stays with them next year? A lot more than the $95 annual fee.

To get a sense of how the numbers work out in my case and why I pay the annual fees on over a dozen cards, see my post entitled “Which Credit Cards Are In My Wallet.”

If a card doesn’t at least meet one of the above criteria, I’ll usually cancel it after the first year.

Should you keep your oldest card open?

There are a lot of myths about credit scores. As is the case with most myths, some are correct and some aren’t.

At the top of the Best Credit Card Offers page of the blog I have a basic explanation of how credit scores work. The components of your credit score are as follows:

  • 35% of your score is made up of your payment history
  • 30% of your score is your credit utilization
  • 15% of your score is your credit history
  • 10% of your score is made up of the types of credit you use
  • 10% of your score is your request for new credit

The average age of your accounts does contribute to about 15% of your credit score. The goal is to have your average age of accounts be as high as possible. In other words, if you’ve had one card for ten years and one card for two years, your average account age is six years. But if you cancel the oldest account, your average account age is cut by two thirds.

I don’t necessarily think you have to keep your oldest account open if the card is costing you money and isn’t doing anything for you otherwise. But I would try to be cognizant of your average account age, and diversify your cards accordingly.

Personally I think the best way to keep up your average account age is to pick up a couple of no annual fee cards with valuable benefits.

You won’t be paying an annual fee and the cards will add value to your wallet, so it’s a win-win.

In many cases it’s even worth forgoing a slightly better sign-up bonus and instead picking up a card that you can keep long term, in my opinion. Think of it as an investment in your credit score.

One example of such a card is the Chase Freedom®, which has no annual fee and offers 5x points on rotating quarterly categories. While it’s intended to be a cashback card, in conjunction with the Chase Sapphire Preferred® Card and Ink Plus® Business Credit Card, those points can be converted into Ultimate Rewards points at a 1:1 ratio.

But personally average account age isn’t something I have much of an issue with, since I keep many cards long term for the perks they offer.

Bottom Line

That’s my general decision making process when it comes to keeping cards past the first year. Obviously everyone values card benefits differently, whether we’re talking about bonus categories on everyday spend or annual perks on cards.

Hopefully the above is at least a good starting point for the thought process.

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Comments

  1. Lucky, what about downgrading the card into something that’s fee-less? For example, my oldest card is a fee-free Visa that I got as a student, and I still have it open as it makes my credit history quite a bit older.

  2. @ Diondi — That’s a great point. My one hesitation with downgrading is that in many cases it makes you ineligible to earn the sign-up bonus on the card in the future. But for many it can be a good option.

  3. Hi Ben,

    Do business credit cards effect our personal credit score the same way? If yes, can it also lower it a few points during credit check? Thanks.

  4. It’s worth mentioning that I believe Amex backdates the opening date of all of your Amex cards to the opening date of your earliest Amex card (as that’s the date you became a “cardmember”), so if your earliest Amex card is quite old, you can actually increase your average age of credit by opening more Amex cards.

    I’m not sure but I suspect they would not move your opening date later if you closed your oldest Amex card, as long as you were continuously a cardmember.

  5. so after LifeMiles devaluation and with all the issue the program has… is it worth paying $75 annual fee for 6k anniversary miles on their card?
    thanks.

  6. @Lucky “Access the club lounge at the Conrad Hong Kong as a Hilton Gold member”

    So you really get automatic lounge access there as a Gold, or did you mean to say Diamond?

    Most of my Hilton stays only get me lounge access if I’m upgraded to an executive room. Which, sadly, isn’t very often.

  7. Hi Lucky,

    Have you got any suggestions for people moving to the states? Would it be helpful to get premier account at banks or is it just not possible for people with no credit history to apply for those cards?

  8. @Lucky

    As one of the (many) beneficiaries of that pizza, I’d like to thank you again for ordering it. Glad to know that you received some points to fund your next adventure out of thd deal 🙂

  9. @ Michelle — The inquiry from a business card does go on your personal credit score, but other than that it doesn’t impact your score in terms of paying on time, average account age, etc.

  10. @ Bgriff — Yep, that used to be a great “trick,” though if I’m not mistaken they stopped doing this a while ago, so it’s no longer the case.

  11. @ Robert Hanson — It is based on availability as a Hilton Gold member, though both times I’ve stayed here as a Gold I did get upgraded.

  12. @ Norman — With no credit history you’re not going to get the good cards. You need an SSN and have to build your credit before you can start applying for the good cards, unfortunately.

  13. Just stayed at Conrad HKG and Conrad TYO and both gave me lounge access, breakfast, internet and welcome gift. Also upgraded the room (unfortunately not to a suite).

  14. i’ll add my 2 cents to Robert H’s comment – do not count on lounge access or free brekkie as a Gold member (neither the Waldorf Astoria in NYC nor the Hilton at Paddington Station in London gave me lounge access or free breakfast on my stays there in recent years – the Hilton Garden Inn at SFO did offer free breakfast, but that’s not quite the same level of perk as lounge access at the Conrad in Hong Kong 🙂 )

  15. Regarding the Hilton comments, as a Gold, you only get lounge access if you get upgraded to an “executive level” room. However, regardless, you should still get breakfast. As a Diamond, you get lounge access no matter the room assignment.

  16. Lucky, I also thank you for the pizza. As well as half of the staff of the Holiday Inn Elk Grove. And in case anyone ever wondered how much 50 pizzas costs, there you have it.

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