Should I Cancel a Credit Card? Your Questions Answered!
It’s a question I get asked more than almost any other:
Should I cancel a credit card?
There are a lot of questions, rumors, and misinformation surrounding when, and if, you should cancel a credit card.
And unfortunately, many people do the wrong thing!
The answer, of course, isn’t cut and dry, and so I’ve broken down the main question in to a few smaller ones to make it easier to figure out whether you should cancel a credit card or not.
When I want to open a new credit card, should I cancel an old one?
No. Most people wrongfully assume that when they are looking to open a new credit card that they should close their old ones.
In fact, closing one or more of your old ones before opening a new might actually hurt your chances at getting a new credit card.
Keeping older credit cards open actually helps your credit score stay high. It keeps your average length of accounts high and it also gives you more available credit.
So unless you have another reason to close your credit card, you should NOT close it when looking to get a new one.
Which credit cards should I keep open?
Each person will have a different situation, but there are a few factors everyone should consider to determine whether they should cancel a credit card or not.
I will ALWAYS keep a card open if it meets any of the three criteria:
1. The card has no annual fee.
If a card has no annual fee, then there is absolutely no reason to cancel it. You are not paying to have it, so you might as well keep it open and let it help keep your credit score high.
This is why cards like the Chase Freedom, American Express Hilton Hhonors, and Citi Hilton Hhonors are such great cards. Get them, get the sign up bonus, and keep them open forever.
2. The card offers an anniversary bonus.
An anniversary bonus is when you get a reward each year for paying the annual fee.
Usually, the reward is enough to negate the annual fee, which basically makes it a fee-free card as long as you use the bonus.
And sometimes, the anniversary bonus is worth much more than the annual fee!
For example, the Chase Marriott has a fee of $85 but gives you a free night in a category 1-5 hotel each year. I just used my free night to stay at the JW Marriott Shanghai, which normally would cost me $237!
The card that offers probably the best anniversary bonus is the Chase IHG hotel card. For a $49 annual fee, you get a free night at ANY Intercontinental hotel.
This includes an overwater bungalow at the Intercontinental Bora Bora, which would normally run $860!
Many hotel cards offer an anniversary bonus, and so do some bank cards and/or airline credit cards.
Bottom line: if a card offers an anniversary bonus, it’s best to keep it open.
3. If it’s an “everyday” card for you.
Some points and miles are better than others (read my breakdown of which ones are best), which means that cards that earn those better points are the cards you should be using for your everyday expenses.
For example, my favorite points are Chase points and SPG points (which transfer to AA miles). Therefore, I’ll use the Chase Sapphire Preferred and the Chase Ink Plus, both of which earn Chase points, for my everyday spending.
Then, when I need AA miles, I’ll use my SPG card.
Even though all of these cards have an annual fee and none offer an anniversary bonus, I still keep them all open.
That’s because they allow me to earn the points I want to earn for my everyday spending.
These are the only 3 cards that I keep open as my everyday spend cards.
How many cards should I keep open and how many should I close?
You should always keep at least a 50-50 split between cards you keep open and cards you close. For example, if you’ve applied for 6 credit cards over the last year or two, you should keep at least 3 of them open.
A 50-50 split will help keep your credit score stable.
Of course, the higher the percentage of cards you keep open, the better, but make sure it’s at least 50%.
Should I cancel a credit card after I receive the sign up bonus?
No, no, no, no, no.
If you sign up for a credit card, make the minimum spend, and get the sign up bonus, you should NEVER cancel it right after that.
If you cancel a credit card only a few months after you get it, you’ll not only be hurting your credit score but you could also potentially get yourself noticed by the banks.
If they notice you doing this, they may blacklist you and not allow you to get any more of the products.
Ok, so when should I cancel a credit card?
If you’ve asked yourself the questions above and come to the conclusion that you should cancel your credit card, then you have to make sure you get the timing right.
For each card, you’ve either had the annual fee for the first year waived or you’ve paid the annual fee for the first year.
This means that it makes no sense whatsoever to cancel a credit card before the annual fee comes up again 12 months later.
If you are going to cancel a credit card, hold on to it for at least a year. This will help your average age of credit, which means you’ll keep your credit score high.
Then, cancel the credit card when the annual fee comes due, 12 months after you first opened it.
Will I lose my points or miles after I cancel a credit card?
Ah, I knew you’d be asking that!
And that’s why I wrote a separate post on this exact subject.
The answer depends on what type of card it is, so make sure to read this post before you cancel:
What if I don’t want to cancel a credit card but I also don’t want to pay the annual fee?
If you are looking to keep more credit cards open to keep your credit score high (remember, keep at least 50% open), then you can do two things:
1. Ask to downgrade your card to a no-fee card.
Many of the best travel cards have “lower versions” that have no annual fee attached to them.
An example of this is the Chase Sapphire Preferred and the Chase Sapphire. If you don’t want to pay the annual fee for the Chase Sapphire Preferred, you can downgrade to the Chase Sapphire.
The good part of this is that it keeps your original account open and helps your credit score.
The one thing to be careful of is that sometimes the lower version of the card has different terms and conditions.
For example, the Chase Sapphire Preferred has no foreign transaction fees, gives you 2x on travel, and earns you “premium” Chase points, which can be transferred to partners.
By switching to the Chase Sapphire, you’ll lose those perks (see the side by side comparison here), including the ability to transfer to partners.
Downgrading is a great option, but always make sure you aren’t losing out on a perk that you value over the annual fee.
2. Asking for a retention bonus
Sometimes, when you call in to cancel a credit card, you’ll be transferred to a specialist. The job of that specialist is to get you to not cancel the card.
In order to get you not to cancel the credit card, they may offer you bonuses, such as statement credits or free miles.
If the offer is good enough to negate the annual fee, then I definitely suggest keeping the card open. The more open cards, the better.
If it isn’t, then decide whether you want to keep the card open or not.
But I’d never cancel a credit card without at least asking!
Overall, it’s better to keep as many credit cards open as possible, as this will keep your credit score high. And always make sure to keep at least 50% of your cards open.
If a card has no annual fee or an anniversary bonus, definitely keep it open.
If it’s a great overall card, like the Chase Sapphire Preferred or the American Express SPG card, then you may also want to keep it open.
If you do decide to cancel a credit card, NEVER do it until the annual fee becomes due a year after you opened it.
By following these simple rules, you should be able to keep your credit score high, stay in good rapport with the banks, and minimize the amount of annual fees you are paying!
What is your best advice for canceling a credit card? How do you determine which cards to keep open?