Noob Reader Question: When should I cancel my rewards credit card?

Posted by Noob Master on Mar 26, 2012 in Credit Cards, reconsideration, retention bonus, Uncategorized | 18 comments

This last week I had a couple different Noob readers email me and ask about canceling rewards credit cards.

This is a great question and one well worth taking the time to unfold. Canceling credit cards unnecessarily can have a negative impact on your credit. Maintaining a good credit score is vital so you can take advantage of the best interest rates on car and home loans, and of course top rewards credit cards offers. When you cancel a credit card, it will shorten your average age of account. The best thing for your credit score is to have credit accounts with looooong account history. Now that we know this, lets talk about the ways to keep your credit accounts active or to at least get something in return for closing an account (like a new rewards cards with a mega bonus).

NOOB TIP: If you have a credit card that you have had for many years and it doesn’t have an annual fee, DON’T EVER close it. That’s it. Don’t close it. Keep it forever.

NOOB TIP: Never close a rewards card right after receiving a sign-up bonus. Don’t do it. Banks “technically” could take back your sign-up bonus or they could “black list” you. Both of these options are bad.

Using Current Cards during the Reconsideration Phone Call

If you apply for a rewards credit card with a bank and you aren’t instantly approved or are initially denied, you may be able to use a current card as a bargaining chip. For example, Chase has initially denied me a new credit card, but after calling the reconsideration line, Chase approved me by switching over some existing credit from a current card. I have also been approved for a new rewards card for closing a current card. I was able to keep my same credit limit and get a new card with a sign-up bonus valued over $600. That’s when it makes sense to close a credit card. Get something in return from the bank.

Downgrade to a no annual fee card

Nobody wants to pay the annual fee. Nobody. There are only a couple of rewards card that I would even think about paying the annual fee on. A way to get around paying the annual fee while keeping your credit account history is to downgrade to a no fee version of your card. For example, the Chase Sapphire “Preferred” can be downgraded to the regular Sapphire. You will lose some of the Preferred benefits, but you don’t have to pay the annual fee. This is a great option that people don’t talk about enough.

Retention Bonus to Offset

Another trick of the obsessed miles addict (me) is to call and get a retention bonus. The best time to call and try for a retention bonus is a couple months before the annual fee hits. Usually the fee is waived for the first year, so I call around 10 months after activating my card. It takes some brass to perform a retention bonus call because you are actually calling to cancel your credit card. Tell the bank that you are canceling because you don’t want to pay the annual fee. What you are hoping for is that the Bank is going to want to keep you as a customer (they do). In trying to keep you as a customer, they will often given you a credit to offset your annual fee or a miles bonus that justifies your annual fee. Often times the retention bonus I receive is greater than the annual fee, so it’s like I’m getting paid to keep my rewards card. Once again, you are keeping you credit account open and letting it age another year. Goood things.

NOOB TIP: I always run some purchases through a credit card if I haven’t been using it before I try to get a Retention Bonus.

Nooberrific

Receiving mega bonuses so you can travel the world for pennies can be fun and very rewarding, but we must be smart when playing this game. Protecting your credit is vital and taking care of your credit accounts will allow you to do just that while not killing your opportunities to earn more miles and points. So the next time you are thinking about canceling your rewards credit card, think through the reconsideration, retention, and downgrade options.

If you have anymore questions about canceling credit cards, don’t hesitate to email me.

— Noob Master