Good morning everyone, I hope you had a great New Year’s Day! A few weeks ago, I wrote My Best Practices for New Credit Cards and Sign Up Bonuses. In that post, I shared a variety of tips and tricks to stay organized and squeeze out the most value from your new credit cards. In today’s post, I will talk about the other side of the coin – best practices for closing credit cards. There are many things you need to do before you call to close your credit card. Here are some tips and tricks to follow:
Is the Credit Card Worth the Annual Fee?
Whenever a credit card has an annual fee, you need to ask yourself, “Does the value you receive from the credit card benefits meet or exceed the cost of the annual fee?” Most credit card benefits are intangible (you cannot touch them), but you must assign a value to them. For example, if your credit card offers these benefits, how much are the benefits worth to you?
- Airline Elite Status – you must fly in order to use your status.
- Free Checked Bags – you must check bags on flights.
- More Award Seats / Better Award Availability / Lower Pricing – you must search and book award tickets using miles and points.
- Hotel Elite Status – you must stay at the hotel chain (or match to another hotel elite status).
- Free Night Certificate – you must find participating hotels and award availability to use your free night certificates.
- Rebated Points – you must have enough points to redeem for an award in order to get rebated points.
- Statement Credits – you must spend money (hopefully on something you want / need) in order to get the statement credits.
- Airline Travel / Incidental Reimbursement Credits – you must find qualifying charges to make in order to trigger the credits.
- Refer a Friend Bonuses – you must have friends, family, or blog readers who will apply for new credit cards with your referral links.
If you are interested, check out my Keep, Cancel, or Convert? Series to see how I decide which credit cards are worth keeping and paying the annual fees.
Stay Organized and Keep Track of Dates
Staying organized is incredibly important if you have multiple credit cards. I have a credit card spreadsheet that I use to track the date I opened the credit card (date I applied for the credit card, regardless of when I was approved, when the credit card arrived in the mail, or when I activated the credit card). I track the minimum spending requirements (including the beginning and ending dates) and when the sign up bonus posts to my account. All of these dates are important if you plan on applying for the same card or another card from the same bank in the near future.
Save your Credit Card Statements
Before you close a credit card, I highly recommending downloading, renaming, and organizing your credit card statements. You never know when an old credit card statement will come in handy. I save every credit card statement for every month from every credit card I have ever had. Since I am signed up for electronic statements, saving the PDF to my computer is easy and takes up very little space on my computer. It’s also important to rename the PDF file since the default name for most credit card statements is like “20200204-statement-1234.pdf” which is not very descriptive. In those cases, I rename the file to “Chase Sapphire Reserve 01-02.2020.pdf” which is my Chase Sapphire Reserve Credit Card statement for purchases made from January to February 2020 and save the PDFs in a specific folder. Most credit card companies will show credit card statements going back 2-3 years, but older statements may be hard or impossible to access. Also, after you close a credit card, getting those credit card statements may be hard or impossible to get.
Take Care of your Miles & Points
This part is very important and has a few pitfalls you need to avoid. If your credit card earns miles or points in an external loyalty program (airline or hotel), your miles or points should post to the external loyalty account a few business days after your credit card statement closes. Once the miles or points show up in your external loyalty account, they are yours to keep, regardless if you keep or close your credit card (just remember that the miles and points are now governed by the external loyalty program and may have an expiration date).
If you made purchases on your credit card and the miles and points have not yet posted to your external loyalty account, you will lose those miles or points if you close your credit card before the miles or points post. You can either wait for your credit card statement to close and for the miles and points to post, or forgo whatever rewards you have pending to close the credit card.
If your credit card earns bank points (like American Express Membership Rewards Points, Chase Ultimate Rewards Points, or Citi ThankYou Points), make sure you redeem or transfer your points from your account before closing your credit card. Depending on the credit card company, the points may be linked to a specific credit card or pooled together with other credit cards that earn the same type of points.
With Chase and Citi, the points are tied to the specific credit card. Make sure you redeem your Chase Ultimate Rewards Points or transfer the points to another Chase credit card that earns Chase Ultimate Rewards Points.
Citi ThankYou Points are tied to the specific credit card which earned them. When you close/downgrade/product-change that particular credit card, the TYPs that were earned on that particular credit card will expire in 60 days of the closure date.
With American Express, if you have multiple credit cards that earn American Express Membership Rewards Points or Citi ThankYou Points, respectively, closing 1 credit card is okay, your points are pooled together and not tied to a specific credit card.
Call for a Retention Offer
If you like a credit card, but the annual fee is not worth the benefits, call the number on the back of your credit card and ask for a retention offer (scroll to the bottom of this post for some retention offer tips). Being honest with the rep goes a long way. You could say something like:
I like the free checked bag benefit, but I only used that benefit twice this year…
I like my hotel elite status, but I only stayed at hotels a few times this year…
I like the airline travel credits, but I only used $50 on 1 flight this year…
Can you waive the annual fee this year?
The worse thing that can happen is that the rep says no. More often than not, if you ask for a retention offer, you will get something. In the best case scenario, the rep may be able to waive the annual fee or provide a statement credit to offset the annual fee. The rep may be able to cover half the annual or provide a spending offer (spend $1,000 in 3 months and get a $100 statement credit). Write down the various retention offers presented to you and don’t be afraid to ask if there are any other offers available. The rep may come back with a higher spending offer that really interests you (spend $5,000 in 3 months and get a $500 statement credit). Crunch the numbers in your head and accept the best offer available to you.
Plan B: If you Don’t Get a (Good) Retention Offer
If the rep says they have no retention offer or can only provide a small statement credit, you still have a few options. You may be able to product change your credit card to a different credit card or downgrade to a no annual fee credit card. Keep in mind that if you convert to a new credit card, you will forgo the sign up bonus on the new credit card. In more cases, no annual fee credit cards have limited benefits and lower earning rates, but the no annual fee credit card will allow you to keep earning miles and points, thereby extending the expiration date of your existing miles and points. If you are not travelling now, but may travel more in the future, you can call back later and upgrade your credit card back to the original credit card. Just keep in mind that some credit cards get discontinued and you will not be able to upgrade back to your original card.
If you are allowed to product change or downgrade to a no annual fee credit card but you do not find the no annual fee credit card worth keeping, it is still a good idea to downgrade to the no annual fee credit card than to close the credit card. Keeping a no annual fee credit card open will continue to help your credit score (your average age of accounts will continue to grow and your credit utilization ratio will remain the same). Plus, you will retain that credit limit in case you need to move credit around or use it as a bargaining chip for a future credit card application. In addition, some banks require or make it much easier for existing credit card holders to apply and get approved for future credit cards.
Plan C: Transfer your Credit Limit to an Existing Credit Card while you Close your Credit Card
If you can’t justify keeping the credit card and paying the annual fee (strike 1), then you called in about a retention offer and got nothing (strike 2), and were not able to product change or downgrade to a no annual fee credit card (strike 3), it’s time to close the credit card. While on the phone, make sure to ask the rep to transfer the credit limit from that credit card over to one of your existing credit cards. Even though you have 1 less credit card now, your credit limit on the other credit card will be higher and that will soften the blow to your credit score. If you decide to apply for a new credit card from the same bank, but your application is pending or denied, you are not out of luck. Call the reconsideration department, tell them that you are not looking for more credit, and that you would be willing to move some credit from your existing credit card. In most cases, those are the magic words and your new credit card should be approved.
Hopefully these tips and tricks will help you when it is time to close a credit card or call in for a retention offer. If you have any questions about any of these tips, please leave a comment below. Have a great day everyone!