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 into a few smaller ones to make it easier to figure out whether you should cancel a credit card or not.
How to Decide If You Should Keep a Credit Card 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 these 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.
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 Marriott Bonvoy Boundless card has an annual fee but also gives you a free hotel night each year. I just used my free night to stay at the JW Marriott Shanghai, which normally would cost me $237 (way more than the annual fee I paid!).
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. You use the card for everyday spending
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 Marriott Bonvoy points (which transfer to American Airlines miles).
Even though all of these cards have an annual fee, I still keep them all open because they allow me to earn valuable points as part of my everyday spending.
Closing a Credit Card FAQ
Now that you understand how to decide when to keep a credit card open, let’s answer some common questions about closing credit cards.
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 cards before opening a new one might actually hurt your chances of getting a new credit card.
Keeping older credit cards open helps your credit score stay high. It keeps your average age of credit history 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.
How many credit cards should I keep open?
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?
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.
Will I lose my points or miles after I cancel a credit card?
One of the most important things to know before canceling a credit card is whether or not you’ll lose your points if you cancel.
There is a lot of confusion around whether your points are safe or not, and one of the worst things you can do is cancel a card, only to find out later that you’ve lost all your hard-earned points.
So how do you know if you’ll lose your points/miles? It all depends on the type of credit card you have.
Airline Credit Cards
Will I lose my points if I close an airline credit card? No.
These cards are specifically tied to a certain airline. The bank issues you the card and you receive the points with the airline it is co-branded with.
An example is the Chase Southwest Rapid Rewards Priority.
Chase is the bank that offers you the credit card. You apply for the card through Chase, you pay the bill to Chase, etc.
However, the rewards you earn are with Southwest Airlines.
Chase and Southwest Airlines are two separate entities. So even if you cancel your Chase credit card, you still get to keep the points in your Southwest Airlines account.
Hotel Credit Cards
Will I lose my points if I close a hotel credit card? No.
Hotel credit cards operate the same way as airline credit cards, and the result is the same.
You will NOT lose your points if you cancel a hotel credit card. For instance, if you get the Chase The World of Hyatt card, the points you earn are with Hyatt. Even if you close your Chase account, you’ll get to keep your Hyatt points.
Bank Reward Credit Cards
Will I lose my points if I close my bank reward credit card? Yes.
We’ve saved the bad news for last. Unfortunately, with bank reward credit cards, if you cancel the credit card, you WILL lose your points.
This is because the bank is the one who gives you the credit card AND the one you have points with. When you close the card, your account AND points go away.
How to Avoid Paying Annual Fees
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.
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 Chase Ultimate Rewards points, which can be transferred to partners.
By switching to the Chase Freedom, you’ll lose those perks. So before you downgrade a card, always make sure you aren’t losing perks that are worth more than the annual fee.
2. Ask 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.
To keep you from canceling the 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!
The Right Time to Close 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 waived for the first year or you’ve already paid the annual fee.
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.
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 an anniversary bonus or no annual fee, definitely 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 standing with the banks, and minimize the amount of annual fees you pay.