If you are looking to cancel your credit cards, you were likely approved for a credit card with a big sign-up bonus and have completed the minimum spending needed to get the bonus miles. By now, you should have miles/points in the bank or you already have taken a fun trip with them. Awesome!
So, when should you cancel the card? After all, you have received the miles in your account and don’t need the credit card any more. Right?
Do Not Cancel Immediately
I recommend to never cancel a card as soon as you complete the minimum spending requirements.
That’s because banks are becoming more sophisticated at detecting repeat patterns of:
- Applying for a credit card and
- Cancelling the credit card as soon as the sign up bonus miles/points have posted into your account
Instead of cancelling the card immediately after you get the sign-on bonus, consider using it for a few small purchases every month. This behavior shows the bank that you are a normal customer and using the credit card as hoped for.
The Main Reason To Cancel A Credit Card:
To avoid paying an annual fee:
The main reason why I cancel my credit cards is because the annual fee for the 2nd year is due.
Remember that the sign-up bonus on many miles and point credit cards is waived for the first year, but unless the card has amazing benefits worth keeping, I will cancel it.
Whenever I call to cancel a card, I am always transferred to the retention department where a “Specialist”. This “Specialist” is a person whose job is to get you to not cancel the card on that phone call and tries to convince me to keep the card.
Usually he or she will offer me a sweetener such as a $70 statement credit, or 5,000 bonus miles for keeping the card open etc.
I will not cancel the credit card if the retention offer is lucrative enough and the value of the sweetener is more than the annual fee. This has only happened a few times for me.
If the sweetener is not lucrative enough, I will keep the card open until I get the bonus miles or points in my account and then call back later and cancel the card.
Will cancelling a card reduce my credit score?
It might.
That’s because your credit utilization ratio (ratio of amount you owe to the total credit available to you) will increase once you cancel a credit card.
Your credit utilization ratio accounts for 30% of your credit score. The second largest factor of the five factors that determine your credit score.
If you have many credit cards and don’t carry much debt on your credit cards, the decrease in your credit score will be small.
Don’t cancel your older credit cards, because the length of your credit history factors into 10% your credit score. If you don’t plan on using an old credit card anymore, hide the card but keep the account open. Assuming there is no annual fee.
Another Option Is To Downgrade Your Credit Card
Another option is to downgrade to a lesser version of the card you’re trying to cancel. This keeps your credit line and history intact, and allows you to retain any points or miles you’ve earned.
An example of this is the Barclaycard Arrival Plus World Elite MasterCard, which comes with an $89 annual fee that’s waived for the first year. If you haven’t used the 50,000 miles you earned from the sign-up bonus by the end of year one, you can downgrade to the no-fee Barclaycard Arrival World MasterCard.
This option allows you to keep the miles in your account. You’ll lose some of the benefits of the premium card, but that beats losing your rewards. This option workd for some cards, but not all.
- Do not cancel your credit cards as soon as you get the sign-up bonus. That is a red flag which may get you banned by banks.
- Cancel your miles and points card only when you benefit, such as not having to pay the annual fee or getting a new credit card with a sign-up bonus.
- And if you do cancel, try to get a retention bonus or some other benefits.
What is the best credit card with reward points that has no annual fee?
In my opinion, the Chase Freedom card. Ultimate Rewards are the most valuable but only when having a Chase Saphire(s), or Ink(s) cards.
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