Do NOT Cancel Your Old Credit Cards Unless You Have to!

One of the mistakes that many people new to the miles and points game make is to cancel their old credit cards too soon or unnecessarily.

There are many misconceptions when it comes to understanding ones credit score. One of those misconceptions is how cancelling a credit card will effect your credit score.

Some people think that having to many open credit cards will adversely effect their credit score. This is simply not true, and in most cases, the more credit cards you have the better off your credit score will be. This is because a major factor (30%) of your credit score is credit utilization. This is the amount you currently spend on credit cards compared to your total available credit.

In general it is a good idea to keep your credit utilization below 10% of your total available credit.

If you cancel a credit card, your total available credit will decrease which will increase your credit utilization and may decrease your credit score. Obviously, if you cancel a credit card with a low credit limit it will have a smaller effect than cancelling a credit card with a larger credit limit. If you already have very low credit utilization and high credit limits, then canceling one credit card that makes up less than 10% of your total credit limit is unlikely to adversely effect your credit score very much.

Another factor making up 15% of your FICO credit score is length of credit history. In the short term cancelling a credit card will have no effect on the length of credit history. Even closed accounts stay on your credit report for up to 10 years. But, many credit card issuers will remove record of old closed credit card accounts sooner than 10 years. Once the history is removed your credit score will no longer reflect this older account which may reduce your credit score. This is another reason to NOT cancel a credit card unless you must.

There are several good reasons to cancel a credit card:
  • You are unable to avoid paying the upcoming annual fee
  • You want to churn the same credit card again in the future and collect more points
  • You have too many personal credit cards with one credit card issuer and you cannot get any more credit cards until one is cancelled

First, I do not like to pay annual fees on credit cards, but I rarely have to. That is because I am able to get retention offers just by calling and saying that I am considering cancelling the card. I recently called to cancel my Citi Platinum Aadvantage card because the $85 fee was due. I was offer $95 statement credit and 2x points on the first $1,000 in purchase for the next 12 months. Of course I kept the card!

Another example: The $95 fee was due on my Chase Ink Bold card. I called to cancel because I was aware that there may be a retention offer available. I was told that there were no retention offers available to me. I said I would wait to decided if I wanted to cancel the card. I called back three days later and was offered 10,000 Ultimate Rewards points after spending $5,000 in 3 months. I said yes to keeping the card. Spending $5,000 is not a problem for me because of the amount of manufactured spending that I do.

So before you cancel a credit card to avoid paying the annual fee. Call to see if a retention offer is available first. If you think you should be eligible and a retention bonus is not offered, hang up and call again a few days later. As a last resort cancel the card to avoid paying the fee.

Check out these Flyertalk links to see what retention offers are available for your credit cards:

Sometimes you may want to cancel a credit card because you want to churn the credit card again to get the sign up bonus again. This use to be a very common strategy. It was well known that you could sign up for the Bank of America Alaska Airlines credit card, receive the bonus miles, cancel the card, wait three months, sign up again, and receive the bonus again. This is getting harder and harder to do as many credit card companies are catching on to this and only allowing one sign up bonus.

Another reason to cancel a credit card is because you have too many personal credit cards and are not able to sign up for more until one is canceled. I know that Chase only allows a person to have five personal credit cards at one time. If you have reached this maximum you will have to cancel one credit card in order to sign up for another.

If you cannot avoid the annual fee and cannot get a retention offer, and decide to go ahead with cancelling a credit card; make sure to first transfer all of the credit limit from the card you are going to cancel to another credit card with the same credit card issuer (if you have another credit card with the same issuer). If you transfer the credit limit to a different card, you will mitigate the effect that reducing your total credit limits will have on your credit score.

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