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The possible effects of cancelling your rewards credit cards

We all know that canceling our credit cards unnecessarily can have a negative impact on our credit scores. And maintenance of a healthy credit score is essential for availing home and auto loans at the best possible interest rates, apart from allowing us to make the most of the top rewards cards offers.


Cancelling Credit Cards


You shorten the average age of your credit accounts every time you cancel a credit card. There is nothing better for your credit health than having multiple credit accounts with long histories.

Now that we are aware that cancellation of rewards credit cards can adversely affect your credit score, let’s discuss some ways in which you can keep these accounts active, or even if you need to close them, you get something good in return, for instance a new rewards card with a hefty bonus.

Wallet Wisdom 1: If you’ve had a credit card for many years now and it doesn’t have any annual fee on it, don’t ever think about closing it! Matter closed. Keep it till your last breath!

Wallet Wisdom 2: Never close a rewards credit card after you’ve received its signup bonus. Banks are authorized to reverse the signup bonus in such scenarios. They may even blacklist you. Both these outcomes are bad for your financial future.

Using current credit cards as baits during reconsideration calls

In the event that you’re initially denied or aren’t instantly approved for a particular rewards credit card, you can strategically use any of your existing credit cards as a bait. For instance, someone we know was denied a new rewards credit card by Chase, but got approved during the reconsideration call when he agreed to partly switch over some of the credit on his existing card. He’s also been approved many times for new rewards credit cards by choosing to close his current cards. He gets to keep his existing credit limit and receives a brand-new card with a $ 600 worth signup bonus! That’s how it makes a lot of sense to close a credit card and bargain for something in exchange.

Downgrading to the no annual fee version

Who likes paying annual fee on his/her credit cards?! No one! There are probably only couple of rewards credit cards that are worth shelling out an annual fee on. You can easily avoid the annual fee payment, and continue with the same credit account by downgrading your card to a no fee version. For instance, the Chase Sapphire Preferred credit card can be easily downgraded to the regular, zero-annual-fee version by agreeing to forego some of its benefits. This is an excellent option that not many credit card gurus talk about!

Shamelessly ask for a retention bonus!

Obsessed air miles addicts don’t shy away from calling and asking for a retention bonus. The timing is the key here! Make that call a couple of months prior to the annual fee payment date. Normally, this fee is waived by most credit card issuers for the first year of the card. So, call after 10 months of the card activation. When you make that call, be prepared to cancel your card if you’re not willing to cough up the annual fee. The best case scenario would be that the bank would want to retain you as their customer and happily waive off that fee. As an alternative, they may even offer you some credit or air miles equivalent to the annual fee amount. In a way, the bank may pay you to keep the rewards card. An excellent side effect of continuing with the rewards credit card for another year would be that you’d have an aged card by the end of the next year!

Wallet Wisdom 3: It’s always better to make some purchases with your credit card, if you haven’t been using it actively, before making that retention bonus call.

Final Word

There’s nothing better than receiving mega-bonuses and traveling the world for pennies! However, you need to be smart at the same time. Protecting your credit score is of utmost importance and taking good care of your credit accounts can help you accomplish that, without compromising on the points and miles’ earnings. So, if you ever contemplate cancelling your rewards credit cards, think about the downgrade, retention and reconsideration options before you take that step.