7 Things To Know Before You Cancel A Credit Card

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We all have different things we’re looking for in credit cards, and over time those things often change. I have plenty of cards I hold onto for years on end, while I also have cards that I cancel after a year or two, because they don’t provide me much ongoing value.

The way I see it, there are three big factors to consider when applying for a credit card — the sign-up bonus, the return on everyday spend, and the perks. Sometimes a card has a compelling sign-up bonus, but after a while you realize it’s not giving you much value otherwise.

With that in mind, I figured it would be useful to write a post about things to keep in mind before you consider canceling a card. In no particular order:

Credit-Cards

Know your card downgrade options

Outright canceling a card might not always be the best option. If your reason for canceling a card is its annual fee, know that there are sometimes options to downgrade your card to another card that could add value, often one without an annual fee. For example, if you have the Chase Sapphire Preferred® Card but don’t want to pay the annual fee anymore, you can potentially downgrade the card to the Chase Freedom® Card or Chase Freedom® Unlimited. Typically the option to downgrade a card is only available if you’ve had it for at least a year.

So know your options if you’re downgrading. It doesn’t always make sense, but if it’s a card you’ve had for a long time, it could make sense to try to preserve the account history for the sake of your credit score, as I’ll explain in more detail below.

Know what happens to your points when you cancel your card

Every points currency works differently, so know what happens to your points if you cancel a card. I wrote about this a couple of years ago, and every program has different rules. So make sure you investigate this before closing any card.

As a general rule of thumb, if you have a credit card that accrues points in an airline or hotel loyalty program, you won’t lose your points when you cancel the card. This includes cards like the IHG® Rewards Club Select Credit Card and JetBlue Plus Card.

Meanwhile if you’re earning points directly with a bank currency (Amex Membership Rewards, Chase Ultimate Rewards, Citi ThankYou, etc.), you typically forfeit your points if you close your card. The exception is if you have another card from that points currency, in which case you can typically pool points. For example:

So be sure you know the rules, and remember that you can usually transfer out the points before you cancel the card.

Realize they may encourage you to keep your card

When you call to cancel your credit card, you’ll most likely be connected to a retention specialist. Depending on the type of customer you are, they may make you an offer to try to get you to keep the card. This could come in the form of a waived annual fee, statement credit, bonus points, a bonus on spend, etc. Again, it won’t always be offered, but sometimes it is.

So before you call to cancel, put some thought into what the card is really worth to you, so you can then decide whether it makes sense to keep or not.

Take advantage of all the benefits offered by a card

Lots of credit cards offer great benefits, so make sure you take advantage of all of them before closing down a card. For example, The Platinum Card® from American Express offers a $200 annual airline fee credit, which is based on a calendar year. Meanwhile your annual fee is based on a cardmember year.

So if you decide you no longer want the card mid-year, be sure you already used the airline fee credit for the year prior to canceling the card.

Wait till the annual fee posts before canceling

While there are some exceptions, generally you’re best off waiting until the annual fee posts before canceling a card. Typically there’s not much downside to keeping the card till the next annual fee posts, because you never know what kind of an offer you’ll get. Credit card companies often have promotions, so the longer you keep your card open, the better the odds of getting such a promotion.

You have a grace period after the annual fee posts to cancel

If you notice that your annual fee on your card has been billed, you’re not out of luck. With most issuers there’s some grace period where you can cancel the card and still get a refund of the annual fee. With American Express, Chase, and Citi, you typically have 30 days after the annual fee is billed to cancel the card and have the annual fee reversed.

What impact does canceling a credit card have on your credit score?

In the “Beginner’s Guide To Miles & Points” we have a section entitled “Credit Cards And Credit Scores.” As explained there, the following factors impact your credit score:

  • 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

Credit score breakdown

Most people don’t understand the little impact that opening and closing credit cards has on your score. If you make your payments on time and don’t utilize too much of your credit, that’s 65% of your score right there. As a result, opening and closing cards impacts your score as follows:

  • Opening cards dings you when it comes to your requests for new credit (which is only 10% of your score), but helps you when it comes to your total available credit, and hopefully your credit utilization, meaning that over time having more cards can improve your score
  • Closing cards potentially alters your total available credit and credit history; if it’s a card you’ve had for a long time and it has a huge credit line, it may impact your score substantially, while if it’s a card only acquired within the past couple of years, it shouldn’t have much of an effect on your score (of course this depends on how many total cards you have, how far back your credit history goes, etc.)

Bottom line

There are lots of valid reasons to want to cancel a credit card, but just be sure you understand what all that entails. Hopefully the above are some useful tips if you find yourself in that situation. I think the most important points are to be sure that you understand what closing a card means for your credit score (not much, unless you’ve had the card for a long time), and to know the downgrade options that are available to you.

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Comments

  1. A good recommendation that you might want to add in the last section regarding credit lines: Often it’s possible to transfer a line of credit to another card with the issuing bank upon closing the account. That should negate some (or all) of the negative impact of closing the account on your credit score. The same applies to opening an account (sort of) — when denied an application, you can sometimes get reconsideration by offering to move part of an existing credit line on to the new account.

  2. @Lucky

    Are the retention offers usually as good as the initial sing up bonuses when offered? I’m coming close to 24 months since my last Chase Sapphire sign up bonus and was contemplating canceling and then reapplying to get the sign up bonus again.

  3. I’ve had a few Chase cards hit the annual fee timing recently and have made numerous calls to Chase (maybe in the neighborhood of 8-10 on 3 different cards) looking for retention offers and received nothing…Perhaps a change of strategy on their part…

  4. @Cole No you will never get a retention offer on the Chase Sapphire that would match the bonus and that is assuming you get a retention offer at all which is not guaranteed. If you want the points you are better off closing the card and reapplying once its been more than 2 years since your last bonus.

  5. @Bill @Jack

    Thanks doesnt seem to make much sense but oh well. Would rather have the higher points for sure.

  6. Are you sure that if you have the Premier and the Prestige, that if you cancel one of them you lose the points earned from that card?

    When I look at my points on the web site, it lists the last 4 digits of both cards. I was assuming it was like MRs where so long as you have an MR card open, you are good to go.

  7. One thing to consider when canceling the Citi TY Prestige (once you’ve met the spend, gotten the points, availed yourself of the travel reimbursements and received the Global Entry statement credit) is that they may credit you your unused annual fee.

    Example: I applied for the Citi TY Prestige in May, 2015, and met the spend in August. I canceled the card in April, 2016, well before the $450 annual fee was charged again and was *credited $150* of the original annual fee.

    For a credit card with such awesome benefits, only paying $300 to receive $3500 in rewards (I used the points to fly Singapore Airlines Suites Class – a $2600 value) was amazing.

  8. @Jack — My experience in the last year has been the same: 3 canceled Chase cards, no retention offers

  9. Just to add, some companies can be very aggressive when you try and close an account. Like, almost as bad as Comcast when one tries to cancel.

    Another thing: Bear in mind that the higher your total available credit, the smaller the ratio is for the amount of credit used.

    Example 1: If I have 2 cards with a credit limit of $20,000 apiece, with $4,000 in total balances, then my utilization rate is 10%. If I then cancel one of those cards, my utilization rate is 20% when the cancellation occurs. This could have a substantial impact on your score and ability to get additional credit, and increase the percentage rates at which you “purchase” credit if you don’t pay in full every month.

    Example 2: If I have 5 cards with a credit limit of $20,000 apiece, with $4,000 in total balances, then my utilization rate is 4%. If I cancel one of the cards, my utilization rate is 5%. This would have very little impact on a credit score and the price paid (meaning associated APR) for future credit, if any.

    The point being that if you have lower total available credit, cancelling a card may have a higher impact on you than for someone with higher available credit.

    Sorry for over-participating Ben! 🙂

  10. citibank recently switched our accounts from visa too mastercard with a new account number, I wonder if that counts on the credit score for cancelling a long time account or starting a new account?

  11. Citibank cancelled a long held card due to lack of use. BOOOO. I think it impacted my credit. I try to rotate use of my cards, but must have neglected it for too long. Amex is pretty good with the retention offers.

  12. Would you be able to look into how the Virgin America Visa card will be handled? I am planning to keep it until the end of the 2017 year to maximize point transfer to Alaska miles at the 1:1.3 ratio, but after that don’t see a point in keeping it. As far as I am aware, the companion pass is not yet available to be used on Alaska flights (which seems silly since the converse is true), so I don’t see that as a viable reason for keeping the card. Thoughts?
    I am also thinking of opening the Alaska Airlines card at some point but am not sure if it would make more sense to do that now (sign up bonus is good but not great) or hold off to try and put as much spend on my Virgin card before that points transfer bonus goes away.

  13. Chase will NOT automatically pool your points. I learned the hard way that you must transfer them to the other card within 30 days of closure.

  14. Lucky can’t say it but I will. If there is an annual free night or club pass benefit (Hyatt, Marriott, United, etc), wait until you receive them or they post before cancelling. They will not claw them back.

  15. Pay ur Card THREE days before statement posts.What’s THREE days nutthing Fico like 794 ,,
    CHEERs

  16. Willy, you can avoid those “agressive” retention specialists, and the hassle of being kept on the phone for a long time while they are processing your closure, by simply cancelling my mail.

    A short letter providing your name and account number, and an unambiguous statement that you are closing your account, is sufficient. You can even enclose your cut-up card if you want to be dramatic.

    They accept the closure and don’t try and contact you, in my experience.

    Of course, if you’re bluffing and just trying to score a deal, then you’ll have to call. But if all you want to do is close the account, this works well.

  17. If you know you want to cancel your account and not have to talk to anyone (or potentially be swayed by a retention offer!) you can cancel or even downgrade your cards using online messaging. I’ve done this for AMEX using their online chat and for Chase using secure messaging. Just let them know which card you want to cancel, if you’re interested you can also ask their downgrade options. For chase it took about 24 hours each, one was a card cancel and one was a downgrade. For AMEX it happened basically during the chat, it was really quick.

  18. Be nice they get DUNGED on all the time . I had a few tell me how to do different things. Love my SPG card Top floor of 4 points Sheraton Miami Beach free upgrade 5 nites. Went down gave Newbie front lady $20 in their room scratch pad so boss didn’t c . UNREAL view 2 rivers and down town Miami nice Lady worked hard to give room @ 1pm.

    CHEERs

  19. @Martin
    @ZH

    Thanks for the tips! They’ll come in very handy for future cancellations/downgrades; I recently downgraded my Amex Plat to Green, and while it wasn’t fast, it was at least pleasant.

  20. Another consideration before canceling a card. I believe Citi cards such as AAdvantage and maybe others like Prestige and Premier are eligible for repeat opening bonuses as long as it has been 2 years (used to be 1 year?) since the same card was either opened or closed, i.e. whichever came last. If you cancel the card after a year, the clock starts all over again. I have had two of the same type of citicard open at the same time without any problem in getting approved. If I were going to cancel a citicard I would do it right after opening the new one (of the same type) since the clock is going to reset then anyway. @Lucky, is my reasoning correct?

  21. After I got the CSR, I downgraded my CSP to Freedom Unlimited a few months after the AF had posted. The rep told me I would automatically get a prorated AF refund; a few weeks later the refund appeared on my statement. (My downgraded card kept the same cc number, but with a different expiration date and security code.)

    Also, if you have an Alaska Airlines card with companion certificate, wait until the next year’s cert posts to your AS account before closing the card. (I closed my card without thinking about this. I got lucky; turned out the cert posted just before I closed the card. Check Flyertalk for more exact timings on this.)

  22. I downgraded my Citi AA Executive Card to the Costco Co-branded card, took all of 10 minutes, at the same time, I transferred all of my available credit line from 3 of my other AA cards to the Costco card. Was able to keep all of my credit line and got a new card.

    Closed my United Explorer Card as well as IHG card, had all of my credit line transferred all but 500 to my Freedom and CSP card.

    This hasn’t affected my score all too much, I think it went down by 10 points, but should shoot right back up in two months

  23. Chase has an interesting credit score feature called Credit Journey. It has a slider feature using all of the above factors that affect your credit score and a few more. You can play with the numbers by sliding back and forth to determine what action will affect your credit score and an estimate of how much.

  24. @Tony – you were FAR more fortunate than I was with Citi — getting them to reallocate my credit was a HUGE pain in the butt, required multiple phone calls and required a hard pull. Absolute nightmare!

    I am trying to consolidate and drop cards that “overlap” (like the Citi Hilton Visa Signature that I dropped while keeping my Citi Hilton Reserve).

    One question: if/when I drop my AMEX Platinum (decided to keep Prestige instead, ESPECIALLY now I have read the 60 day restriction!), will they “claw back” my Gold status with Starwood (and Marriott) or do I keep it for the remainder of the year?

    FWIW, I am planning to get a Business Platinum at some point and am hoping/planning to keep my MR alive with a Blue for Business card (although I realize transfers are limited).

  25. @Craig I knew about the hard pull to move my credit they were up front with me on that, I don’t understand why they do it and chase does not, but I knew I wasn’t going out for a new CC for a couple of months so I was OK with it. To be able to consolidate all of my AA cards into one and have a high CL, was what I was looking for.

  26. I am surprised so many people got product changed from CSP to the Freedom line. Chase told me they couldn’t do that but offered the vanilla Chase Sapphire as an alternative. Doesn’t have the earning potential of Freedom or FU but if I am correct, now that I have it, I actually don’t need CSP or CSR or the Ink Plus cards to be able to transfer UR to airline partners?

  27. Ryan – this may be a HUCA (Hang up, Call Back) or a timing situation. There have been many reports of success, and some others of failure.

  28. @UAPhil, thanks for the information. I am OK actually with just Sapphire, especially if they allow me to have full UR benefits if I ever decide to go back to my old no AF days. Although I guess having my biggest regular expenditure only accrue 1UR instead of 1.5UR every month (kid’s childcare) does kind of hurt…I guess at the end of the year it could be a whole night at a category 1 Hyatt I am missing out on.

  29. There’s an revision coming to credit scoring that will have major impact on churners. Just read it in the news today. It is not FICO, but the other one, cannot remember its name but it’s the one credit card companies use.

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