When to Cancel or Close a Credit Card

When to cancel or close a credit card is a question several TravelSort readers have asked me, most recently Neil, so I figured it was time to answer this in a post.

Before delving in, I think it's helpful to figure out what your own credit card strategy is, since not everyone operates the same way, so not everyone will agree on when to cancel or close a credit card.

  • Churner: Your goal is extreme maximization of all credit card bonuses and benefits while keeping your credit score above 700, and you're willing to cycle through pretty much every churnable card to do this. This is probably a minority of those reading this blog, but it's certainly some of you out there.
  • Keep Some, Churn Some: This is where I am, and probably many of you are as well: you don't really want to churn every possibly churnable card, so you'll keep some cards that continue to reward you beyond the signup bonus, and churn the credit cards that only had a good signup bonus
  • Keep it Simple: While they may not be reading this blog, many folks in the general population are in this category: they ideally want just one or two credit cards and don't want to deal with the hassle of applying for and closing new cards. 
Now, if you're a Churner, you've probably already figured out what works for you in terms of opening and closing cards (though you still may learn something new below). If you're Keep it Simple, you plan on almost never closing your credit cards. In both cases, less need to read this post, which is mostly for people in the middle camp: Keep Some, Churn Some. Within that camp, here's how I categorize the cards I have:

1. Regular Use Cards: These cards are at the top of my wallet because I use them often. In order of frequency of use, they are:
  • Chase Freedom: All small purchases go on the Freedom, thanks to the ability to maximize Chase Exclusives bonuses, plus whatever the current 5x category is. From July-September it's restaurants and gas, and I'll be maxing out the bonus by putting a total of $1500 in dining spend on this card for the three months 
  • Sapphire Preferred: Prior to the current 5X Chase Freedom bonus, I always used my Chase Sapphire for dining, and still use it when dining abroad, as there are no foreign transaction fees. I also use it for all non-airline transportation, such as train and subway tickets in the U.S. and abroad, thanks to the 2X bonus (2.14 after taking into account the 7% end of year dividend).
  • AMEX Premier Reward Gold: This card takes a backseat to others, especially last quarter when I used the Chase Freedom for its 5X grocery spend, but it has been handy to use for groceries when I'm not using the Chase Freedom or a gift card. I don't have a ton of airline spend, but when I do, I use this card for its 3X, since it's more than 2X from the Sapphire Preferred. Given the hefty $175 annual fee, however, I most likely will not renew it, especially as my husband recently got the AMEX Premier Rewards Gold card with a targeted 75,000 bonus
2. Perks Cards:
  • British Airways Visa: Although for many folks this is in the third category of Signup Bonus Cards, for me, the nice perk of this card in the past year has been getting $200 off Michelin dining in NYC. British Airways ran two NYC Michelin dining promotions, each of them for $50 off dining at Michelin restaurant twice, so $50 x 4 = $200. Since my husband also had the card, that meant a total of $400 off fine dining, and $100 off each of those dining experiences since we split the check. See British Airways Offers $100 Off 2 Michelin Restaurants…Again!
  • Alaska Visa: The bad news that from August 1 Alaska Airlines won't issue companion vouchers valid for first class prompted me to apply and get approved for the Alaska Visa, so that I can receive a companion voucher valid for first class before August 1. I must admit though that while this used to be an annual perk, and the reason many folks kept the card, in my case it will be more akin to a one-time signup bonus incentive because the first class benefit is being eliminated.
  • Other Airline and Hotel credit cards: While I don't travel enough domestically to care about airline ancillary fee rebates or lounge access (and when I travel internationally in business or first class it comes with the award ticket) many  folks do find value in cards such as the United Club Card that comes with United Club access, or the AMEX Platinum with its $200 airline fee rebate and access to American Airlines Admirals Club, Delta Sky Club and US Airways Club.
3. Signup Bonus Cards:
  • Citi AAdvantage Cards: My husband and I picked up 300K AA miles from 4 cards back when the bonus was 75K each; the current best Citi AAdvantage card offer is 50K per card, and you can apply for a maximum of two cards simultaneously (use two browsers). While it's been too soon for either of us to reapply, historically people have reported success at churning these cards at 18-20+ month intervals. 
  • United MileagePlus Explorer: This was an especially good signup bonus as my husband and I each received 50,000 miles after first use, then 5000 for adding each other as an additional user. Another 10,000 bonus would be available if you spent $25K on the card in the year, but that won't be worth it for many. See United MileagePlus Explorer: 65,000 Bonus Miles

When to Cancel or Close a Credit Card

Ok, so back to the question at hand: when to cancel or close a credit card?
For the first two categories, Regular Spend and Perks cards, these are cards that, as long as they keep the ways they're rewarding you, whether with miles or points bonus categories, companion ticket or lounge perks, etc., you want to have them around.
Now, if you're a Churner, you'll try to churn them so you can keep getting the signup bonus in addition to getting the spending bonuses or other perks of the card. If you're Keep it Simple, you're at the opposite end of the spectrum and probably will just keep these cards, paying the annual fee.
If you're Keep Some, Churn Some, here's my advice:
  • Keep the no annual fee cards indefinitely: Since there's no annual fee and you're getting great mile or point spending bonuses or perks, a no-brainer
  • For annual fee cards, try to get a fee waiver or retention bonus: Unless you absolutely hate negotiations of any sort, it can be worth calling a few months before your card anniversary date to try to either get the fee waived or get some kind of retention bonus. Even if you get shot down the first time, you could try again a few days later. 
  • If you have a partner, have your partner get the card instead: If you have a partner who doesn't yet have the card, you could have them get the card, hopefully with an attractive bonus, and have your partner use the card going forward for bonus spend. Now, this won't work if it's a perk card that you want to use for airline lounge access and you travel separately, but it could work for cards such as the AMEX Premier Rewards Gold card or Sapphire Preferred if the two of you typically make the purchases together or online.
  • If the rewards/perks are still worth it, keep and pay the fee: If you can't get a retention bonus or fee waiver and it's not practical to have your partner get the card while you cancel yours, just pay the fee. Make sure to keep re-evaluating every year, however, whether the fee is worth it.
For Signup Bonus Cards for Keep Some, Churn Some, the above advice still applies except for the fourth point: by definition, you're not going to keep the card, so you intend to close it and not pay the annual fee if you're unable to receive a fee waiver or retention bonus.
But when?
  • Don't cancel too soon: Most credit card issuers state that they have the right to claw back or get compensated for bonus miles or points if you cancel the account within 6 months. Sure, it may almost never happen, but why take the risk? Keep the account open at least 6 months. Although this post is about credit cards, the same usually applies to miles and points bonuses for checking accounts and other financial accounts. Make sure to read the fine print and not withdraw too early.
  • Don't cancel before you transfer your credit limit to a new card: As you know if you read our post Understand How Your Credit Score Works to Maximize Credit Card Rewards, 30% of your credit score is determined by credit utilization and amounts owed. That means that the higher your credit limit and the less you're using at any given point in time, the better. This is why any month you put high charges on a given card, you want to pay that off immediately, even before your statement closes, especially if you're applying for a new card. Hence, you don't want to lose any of your credit limit when you close an account. Either use it as leverage to secure a new card, or transfer your credit limit to another card belonging to that issuer, before you close your account.
  • Don't cancel your oldest card: Hopefully, your oldest credit card is a no-fee card, because you want to hold on to it. 15% of your credit score is your credit history, so age of your credit accounts matters. Now, unlike what you may have heard, closing an account doesn't automatically wipe it from your history; it can stay on your report for up to 10 years, and as long as it was in good standing and paid up when you closed it, that's a good thing. BUT just because it could stay there 10 years doesn't mean it definitely will; issuers may remove a closed account at any time. So again, unlike what you may have heard elsewhere, you can't count on every closed account remaining on your report for 10 years. 
  • Consider converting it to a no-fee card: If you don't have another card with the issuer that you can transfer your credit limit to, you can try to convert your card to a no annual fee card. Just be aware that you're most likely forfeiting the chance to earn a bonus on that no fee card, but in most cases it's a small bonus that you're giving up. Also note that while you can usually convert an issuer's own cards to a no fee version (e.g. Chase Sapphire Preferred to Chase Sapphire), often you can't convert airline or hotel cards to a no fee version, and you usually won't be able to convert an airline or hotel card to an issuer's own no annual fee card.
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