Credit card Tips Credit Improvement

Why should you not close a credit card?

Closing a credit card basically amounts to closing an account and this can have serious impacts on your credit score. Hence, it’s always best to consider all options before you decide to actually go ahead and close a card account permanently.

No Annual Fee cards

Since you don’t actually “pay” to keep the card, you should ideally never close the card even if you don’t use it often anymore. As long as you make sure to pay off any/all balances timely (setup auto-pay to make life easier) you should be fine.

If it’s a balance transfer card, pay off all pending balances and let the card stay open as it’s adding to your age of accounts. If you close a card with debt on it thinking it’s going to make that debt go away, you couldn’t be more wrong. That debt is probably going to circle back to you through a collection agency in the likelihood of you closing an account with a balance on it.

The age of your credit card, or “history” including all your payment history, your utilization count towards your credit score and if this was your oldest/one of your oldest cards, you can expect your credit score to drop extensively because you’re losing all that data from your historical record. However, if your portfolio contains 10 cards collected over a period of 10 years and you absolutely want to cancel a NO-ANNUAL fee card, canceling the newest card (with a smaller credit limit and good standing) will least affect your score.

Annual Fee Cards

With these cards, you actually pay out of pocket to just keep the card active for each year you wish to use it. Granted there are cards that have the first year fees waived but that fees will hit at the 13th month of you keeping the card (first month of the next year of card membership).

If you’re not comfortable paying the annual fee, there’s a few options to consider apart from closing down the card outright.

Downgrade Options

A lot of annual fee cards tend to have downgrade paths to them and this is information you should learn before you actually apply for an annual fee card.

Some examples include:

  • Chase Sapphire Reserve/Preferred -> Chase Sapphire, Freedom and Freedom Unlimited
  • American Express Blue Cash/EveryDay Preferred -> AMEX EveryDay
  • American Express Hilton Surpass/Ascend -> AMEX Hilton Honors

And many more (never hurts to know all the cards and their downgrade options. It is also important to know if the card history remains intact or changes. Most issuers will do a “product change” (changing card type) without actually changing the card info or affecting it’s credit history but it never hurts to confirm it with the bank before you do it.

Retention Offers

If a card does not have a no Annual Fee downgrade path/option, you next step of action could be to call the Bank’s Retention Department. When you call up customer service and let them know you’re thinking about canceling the card after year one as it doesn’t look like it’s going to be sustainable to pay for it for another year, at times they will give you offers like:

  • Free points
  • Statement credit to cover part/all of the fees
  • Waiver your annual fee (very unlikely)

American Express is known to give retention offers such as $100 statement credit towards the Gold Card Annual fees, $300 or 30,000 MR points towards the Platinum Card if you have a good history with them.

Do note, retention offers are given based on what pops up in their system and if they say that’s the best offer for you, it probably is. I’m not sure if you have to be a high spender to guarantee a retention offer but I’m pretty sure if you spend enough that they still profit from your transactions, they’d probably give you an offer.

If the retention still doesn’t seem worth it to you or you just don’t want to pay any fees, it’s always best to either downgrade or cancel. The latter may have a temporary negative impact on your score but in the long run, it wouldn’t matter as much.

Closed accounts with good standing will stay on your credit file for seven years.

Impact on Credit Score

Closing an account will affect your score more if you have few few accounts (<10) and from what I’ve seen, a score will drop sharply but it’s takes a long time to recover. Tht being said, if you have over 10 card accounts and you closed your most recent card, say the AMEX Gold Card, it won’t affect your score as adversely because there is no change in your credit limit as it is a charge card. It may end up improving your score as your average age rises.


There will be times when you may want to cancel a card but it’s best to know all options before you do. If a card is a NO-ANNUAL fee card, pay it off timely and keep it in a drawer off to the side (using it once in maybe 6 months to keep it active) as it will help you build history.

If it does have an Annual Fee, consider retention and downgrade options unless neither are available in which case canceling is probably the way to go.

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