You may have already heard from me and other articles that canceling a credit card does not help your credit score. But sometimes, you just have to do it. For example, you may have an annual fee or some ongoing customer service nightmare.
What’s happens to my credit score if I cancel? While it won’t help my credit score, it likely also won’t hurt it very much either. As explored previously, the two factors that matter are credit limit utilization and average age of accounts. As long as this card doesn’t comprise a huge chunk of your total available credit limits, it shouldn’t affect your utilization ratio very much. In my case, this AmEx Gold card is a charge card and doesn’t even have a credit limit, so it won’t matter at all. As for the average age of accounts – your account is already opened! Closing it won’t make it any older.
Still want to cancel? Here are some tips to keep in mind:
#1 Consider simply switching to another type of card with better features or annual fees.
If the reason for closing the card is to avoid paying an annual fee, perhaps try to simply convert the card to another style offered by the same issuer. For example, I could ask to be transferred to a card which has no annual fee. They might say yes, they might say no, but it’s worth a try.
For example, the more heavily-pushed Citi Platinum American Airlines Card has an annual fee of $50, but the lesser-known Citi Bronze American Airlines Card has no annual fee (albeit with less rewards). So instead of canceling your platinum card, you could just convert it to a less valuable metal but still be able to earn a few quick miles when needed.
#2 Combine the credit limits with another existing credit card.
Similar to above, you can simply try to “move” your credit limit from the card you want to cancel onto another existing card you want to keep (within the same issuer.) This way, you can get rid of one card while keeping your nice credit limit and maintaining your credit score.
#3 Go fishing for some financial encouragement to stay
When you call to cancel, you will usually be transferred to a special person trained to handle cancellations. This may also be referred to as the “Retention”, “Loyalty”, or “Member Relations” department. The primary goal of this person is to keep you a customer, using whatever means at their disposal.
Accordingly, your goal here is to find out what they have to offer you. First of all, be nice! Help them to help you. Instead of asking sternly to cancel, you might say something like “I am thinking of canceling because my interest rate is too high.” This would encourage the rep to offer you a lower interest rate. For my situation, I might say something like “I don’t like this card enough to pay $125 next year, it seems a bit steep”. Ideally, this would lead to something like a $100 credit to stay, another annual fee waiver, or some other financial incentive. They may have a variety of things in their goodie bag, and it may change from time-to-time due to quotas or whatever.
I usually call early, usually as soon as I get the sign-up bonus and I know there are no other redeeming features. For example, I have been offered a $25 gift card to stay another 3 months by Discover. After that time period passes, I can call again.
#4 Sometimes you’ll just get lucky
One time while canceling another American Express credit card, I just didn’t like what they had to offer and simply canceled. To my surprise, I got a pro-rated refund of the remaining part of my waived annual fee with my final statement! Out of the $90 fee which I didn’t have to pay, I got a $63 credit. The only takeaway here is that if you really want to cancel, just go ahead and do it. If I had waited until the last moment, my prorated annual fee would have been just a few dollars.
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I read this post ONE NIGHT after cancelling my AA card and NOT converting it to the bronze Citi card that was offered to me, because I didn’t see why I would live with only one mile for every two dollars spent. I didn’t realize I would be converting the account, not open a completely new one.
Oh well, you live and learn. I did recently open a business account with Citi because of your post on how everyone can have a buisiness account. Thanks for all your great posts!
I’m a little confused about FICO scoring. Is it better to have a high credit card limit (like $20,000) with little or no balance on the card? Or a lower limit (like $5,000) with little or no balance on the card?
Juelz, I believe they use both the limit/balance ratio, as well as the overall limit. I’m pretty sure high limits result in higher scores, by simply lowering your limit/balance ratio.
Great article, by the way 🙂 How difficult is it to call and have your limit increased?
Yinna – Sorry I wasn’t faster 😉 Converting a card also prevents the need for another credit check.
Juelz – Nobody knows 100% for sure, but based on what FICO have revealed, it would appear a higher limit is better, all other things held equal.
For sure, if you have something like a $4,000 balance, having a $20k limit would be better than just a $5k limit.
Christopher – For most issuers, you can just call up and ask; Worst case is they say no. They may ask to check your credit score again though, always ask for what they can give you without going through that.
With Citibank you can even do it online.
Sometimes if you just applied for an offer and aren’t satisfied with the limit given, you can also call in and try to convince them to raise it. Again, worst case they say no.
I still don’t understand why people already with great credit like you Jonathan are so concerned about their credit score. Yes, I know you’re shopping for a house. Yes I know high score = better interest rates. Based on your financial situation, you’ve already got to be in the top 97th percentile. So what if you drop to the 95th? Do people really think this is going to save them money? I don’t think it makes a hill of beans. They’re just guidelines used for lending.
I can’t help but think that deep down running up the credit score is just the Yertle the Turtle in us.
Ted has a point there. We applied a home loan this year and here’s what I learned from WaMu. My score was 730-40 and hubby’s was 780. I asked how these would affect the rate we could get. The rep said they would automatically go with the lower one (mine); and as long as the score is >730, you’ll get the best rate they can offer. Of course he could be just saying that to show we were already getting the best rate. But I’m sure every lender must have a guideline, be it 730 or some other number, to give their “best” rate.
Still, it’s just human nature to want to have the highest score on anything. 🙂 Like right now, hubby’s FICO score is 812!!! Can’t help gloating a little about it.
Isn’t keeping the refund of the annual fee that you DIDN’T pay unethical?
Amex will convert cards. I was going to cancel my Starwood Optima because the fee went up, I don’t travel much anymore and I have enough Starwood points for now.
when I called first thing I said was “what can I switch this to?” instead of “I wanna cancel” which sets off the Retention police alarm. I changed it to a Blue Cash with no annual fee, same acct number and all that. I wanted the Costco card more but that would require a new account and I have enough already.
Two wrongs don’t make a right, but I really can’t feel bad about taking money from credit card companies given their predatory practices.
Thanks for sharing these tips–I had no idea that credit card companies sometimes offered cash incentives to not cancel!
Great detail article. thanks. keep up the good work.
#5. Don’t sign up for credit cards you have no intention of keeping.
Wachovia\Visa’s credit card allows you to request an increase online and receive the results immediately. As soon as I clicked submit, my limit was increased and immediately showed up as available credit. However, I didn’t requested a specific amount but rather allowed Wachovia to decide for me.
Is there any downside to frequently requesting an increase in your credit limit een when you don’t plan on using it?
Great article, unfortunately some card companies (like Chase) just won’t deal. Their attitude when I called up to say I didn’t like the rates and wanted to try to get a better one or I would have to cancel the card, they said fine, cancel. Seemed a strange way to run a business, or perhaps I didn’t approach it correctly.
Jonathan,
You mentioned that closing a new account will not help your credit score because it won’t effect the average age of your accounts, since it’s already opened.
Won’t closing a new account increase the average age of all of my remaining credit accounts (after closure of the new account), therefore helping my credit score?
People over do the credit score. I’ve seen statics that if your over 720, your credit score doesn’t matter as many people might think or has very little effect. My credit score is in the 800’s, but I personally only keep open a credit card if it has a purpose. I believe in keeping open the oldest credit card you have, if the credit card does not serve as a purpose I would close it. I do know people who have 20 credit cards open. I only have about 5 or 6 and I’m able to close another one very soon. If my credit score went down to 790 I seriously doubt it would effect me one bit and I could careless.
I truly think too many people see that number if you have this score that means you’ll get this rate. Score does not equal rate…….as many have indicated. It may to a certain extent, but if you have a score of 740 and it drops to 730 for instance…….I’d seriously doubt you’d get a lower interest rate.
Brian : Closing an account reduces the average age, since that closed account is on file for long. (7 yrs ??)
Simple Example :
Card 1 – From 2000 to 2007 = 7 yrs
Card 2 – From 2001 to 2007 = 6 yrs
Card 3 – From 2002 to 2004 (closed in 2004) = 2 yrs
Total years = 7 + 6 + 2 = 15 yrs
Total cards= 3 (not 2, since that card is still on file)
Average Age = 15 / 3 = 5
BUT
if you had kept Card 3 open, then age of Card 3 would be 2002 – 2007 = 5 yrs
and Avg age would be = (7 + 6 + 5) / 3 = 6
What happens when you report your cards lost/stolen then? They still stay on your file too so you are saying that that would cause your score to drop considerably since all the accounts would be recreated?
Ted – I agree, I don’t fret about it nearly as much as it may seem. This is why I borrow money on 0% balance transfers, in a way it’s USING the good credit I have built up and cashing in on it.
Li – I agree, that is what one mortgage lender said to me too. He looked at our scores and said “above 700” – you get the best rates! That was it – no suggestions for upping the score or anything. The bar isn’t that high, and there are not that many tiers.
Matthew – If someone gives the the wrong change at the cashier, and I notice it then and there, I’ll tell them and give it back. If I only notice after emptying my pockets at night into the change jar, I’m not going back. I don’t feel bad about that. In this case, my account was closed already – am I going to ask them to charge me more money (and charge it correctly) and open up a potential Pandora’s box? I’d probably get charged the whole annual fee again. I’m sorry, but noooo way.
Melvin – I believe there is something noted in the files about such accounts that maintains their age, but I can’t be 100% sure unless there is a article from FICO stating as such.
One more reason to cancel a card is to apply for the very same card again. I was able to get 25K miles on United card, and later, after cancelling and re-applying again, 20K more.
I originally got a BankAmerica Visa in 1982. Over the years they have changed it gold, platinum, moved the account from CA to AZ for their own purposes, etc. Guess what? When I got my credit report I saw that these changes were all listed as *separate* accounts. The older incarnations of the Visa were listed as “closed.” So much for average age of account even though I have had a card from them for 25 years.
BTW, I don’t really care for BofA and save their card for internet transactions with companies I have never dealt with before. I don’t get rewards from BofA but they have had to process a few chargebacks (that they may have eaten) for merchandise not delivered. (Had to quote federal law to them one time to get them to cooperate.)
Yes, Oleg, I think I found the same thing. When I closed my Citi/AA card I asked the representative, and he said I should be able to open a new one right away, with the sign up bonus and all. I thought he must be misinformed, but when I read the current Citi/AA offer, it says it’s only for ‘new accounts’ – there’s no talk about new customers. I am certainly going to try scooping up another 25k points!
Mark, what federal laws are you talking about?
I recently got my AMEX Business gold 25000 points. I am also thinking of canceling this card as well.
My question is, do I have to redeem these points before canceling the card or Can I cancel the card without redeeming these points? Any suggestions? I have other AMEX blue card as well. Thanks.
I just tried to change my AmEx Gold Business card into their SimplyCash Business card. They declined. I asked if I can convert it into any other type of AmEx card. They said no. Seems like they don’t change charge cards into credit cards. They offered me to apply for a new account. I don’t feel like dinging my credit score right now. So I will just cancel the card.
WAMU denied to do a balance transfer in spite of extending me the offer during account opening. The reason they claimed is the balanace transfer checks they issued to me are expired and they cannot issue new ones, in spite of having balance transfer offer for another 10 months. I got completely pissed off and asked her to trasnfer me to retention department. The nice lady says there’s no such department and she *can* do it. so much for customer service.
I decided to keep the card for the free FICO score 🙂
Cheers
MobileDeveloper,
I used to think the same, but as it turns out in the FICO scoring model the closed accounts continue to ‘age’ too. age = now minus date of opening account, closed or open. There is a more subtle difference years later when the closed account falls off your report and is no longer considered in the score, whereas the open account would continue aging.
I really learned a lot from this blog. I didn’t know that those credit companies will do that much to keep you as client.
Thanks Tahsin, I haven’t actually tried yet myself, I’m waiting to redeem my points first (haven’t decided for what yet). If they don’t let me either I’m going to just cancel as well.
Yeah Jonathan, I actually had Discover offer me $25 two times in a row to keep me around, as long as I agreed to make 1 more purchase with the card. Amazing.
With regards to:
“#2 Combine the credit limits with another existing credit card.”
Just be sure when you combine the cards that you maintain less than 30% to 50% of your credit limit otherwise it could impact your credit score.
If you sign up for the free Citi protection service or whatever it is for 60 days, they will give you a copy of your credit report, AND they have this cool online tool that will show you what will happen to your credit score if you cancel various cards, pay off certain balances etc. It is pretty nifty and FREE if you use a citi card… Then you cancel the service of course.
Even if you aren’t planning to buy a house or refinance, and you don’t plan to finance a car, credit scores can be important for getting the best auto insurance rates. Progressive once notified me that I wasn’t getting the best rate because of “negative” information in my credit report. The negative info? I had opened a Home Depot account a couple months earlier to get a 10% discount on my purchase. I saved fifty bucks at Home Depot and lost twice that on my auto insurance. Some insurance companied use credit rating as an indication of insurability.