Should I Cancel A Credit Card?
Some credit cards stick with you year after year because they provide value, have great point earning potential, or provide you with perks and benefits you can’t live without. However, what happens if those perks change, life happens and we are no longer able to travel often, or simply no longer see value with that specific card anymore?
Many people will simply opt to cancel that credit card and be done with it. But continue reading and I’ll tell you why that may not be the best option and instead show you what else could be done.
There are three things that can happen when deciding what to do with a card, especially when it has an annual fee and the second year’s fee comes up.
Canceling Your Card
Canceling your credit card that you no longer use or find value in is the obvious choice. However, it may be a poor choice as it may decrease your reputation with that bank or lender and jeopardize your future chances at acquiring another card from them. It will also decrease your available credit and shift your debt to credit ratio and thus can affect your credit score.
If you must cancel the card, it is especially important to not cancel a credit card before the annual fee shows up on your account. Canceling a credit card before having it for a year does not make banks happy and can cause you to be denied a future welcome bonus from that bank. In general, you have about 30 days after your annual fee posts on your account to cancel your credit card to get a full refund. Further than 30 days may result in a prorated refund which is up to the bank. Important thing to note that Capital One and Discover have been reported to NOT refund your annual fee after it has been posted so they may be the only exception.
Product Changing
Instead of canceling your credit card, you can opt to “product change” your current card to another card as long as it is an eligible product. Eligible products are within the same family of cards and your bank can tell you which ones are eligible.
Product changing is a great option as you can choose a card that has a lower annual fee or one that has no annual fee. This option is recommended as you continue to build your relationship with the bank and keep your available credit lines open. The lower tier cards may also provide other benefits that may fit your needs better.
Not all cards have a product change option and sometimes canceling is the only choice if no retention is offered.
Note: When you do a product change, you are not eligible to earn the welcome bonus for the card you changed to. Welcome bonuses are only for opening new accounts.
Retention Offers
A lesser known option is asking for a retention offer. This is when a bank offers you a certain amount of points or statement credit to keep you from closing that specific card. The retention offers usually come with a certain spending requirement within a specific timeframe. Think of it like a mini welcome bonus. For example, you may be offered 40,000 points to keep your card open but you’ll only be awarded those points if you spend $3,000 within the next 3 months.
Asking for a retention offer is the first strategy you should employ with a bank as they may be a pretty lucrative option. Some banks give retention offers out more than others so your mileage may vary.
Note: Retention offers are not always available and do change daily. I recommend calling before your annual fee posts and after it posts to see if anything pops up on your account. You will most likely be transferred to a “Retention Specialist”.