Miles and Points Travel

Don’t cancel that new card! Here’s why and what you can do instead

When you sign up for a new card and then earn the bonus, it’s tempting to cancel it and move on to the next one. However, you could leave yourself open to a host of trouble if you do that. Issuing banks do not like to see accounts constantly closed and they have been know to “claw back” any miles or points already earned. Not only that, but your credit score can take a hit, and no one wants that!

You are better off keeping the card for at least a year, and honestly, two years is my rule of thumb. I’ll give you some ideas of why closing it is a bad idea, and a few options of what to do instead:

1. Impact on Credit Score: Closing a credit card account can impact your credit score. It can affect the length of your credit history and your credit utilization ratio, both of which are factors that influence your credit score. If the card you’re canceling is one of your oldest accounts, it could have a more significant impact on your credit score.
2. Credit Utilization Ratio: Closing a credit card reduces your total available credit, which can increase your credit utilization ratio if you carry balances on other cards. A higher credit utilization ratio can negatively impact your credit score.
3. Potential Fees: Some credit cards have annual fees, and canceling the card within the first year might mean forfeiting that fee. It’s wise to consider the terms and conditions of the card before canceling it to avoid any unexpected fees.
4. Effect on Credit Mix: Credit scoring models also consider the types of credit accounts you have. Closing a credit card account could potentially reduce the diversity of your credit mix, which might have a slight impact on your credit score.
5. Future Credit Needs: Even if you don’t currently use a credit card frequently, you may need it in the future for emergencies or for building credit history. Keeping the account open can preserve your access to credit without having to apply for a new card later.
6. Points or Rewards: If the card offers rewards or points, canceling it could mean losing those benefits. It’s essential to consider whether the rewards accrued are worth more than any potential drawbacks of keeping the card open.

However, if the card has high fees and you’re unable to manage it responsibly, you have a few choices:

Call the issuing bank and see if you can downgrade the card. That is the process of product changing, which means staying with the same issuing bank, but moving to a new card that has no annual fee. You will forfeit any signup bonus for that particular product, but you will at least save your relationship with that bank. It allows you to keep the same credit card number and it just “shifts” your product to the new card with the new benefits it comes with.

For example, if you’ve had the Chase Sapphire Reserve and you no longer see the value in what you are earning on the card, you can call Chase and ask about switching to their Chase Freedom Card that has no annual fee.

Or you can ask for a retention offer. This option is best if you are on the fence about keeping the card. Often times a card issuer will offer you an incentive to keep the card, and the fee, for another year. The offer could be bonus points for additional spend, a waived annual fee, or more. But you have to call (or chat) and ask! There is no guarantee you’ll get one, but it’s worth checking. Keep in mind if you accept it, you’ll be locked in to that card for another year-it’s like getting a new welcome bonus.

I wasn’t sure I wanted to keep my American Express Platinum card after the first few years. I chatted with Amex to see what my options were. They offered me 40,000 bonus points if I spent $3,000 in the next 6 months. Totally worth it for me to keep the card. That is almost enough for a one-way Business Class ticket to Europe! Easy decision.

It’s essential to weigh the pros and cons and consider your long-term miles and points goals before making a decision.