Should You Ditch a Credit Card If You Start Losing Perks?
Here's how to decide whether to keep or close a credit card when your card issuer changes its rewards program or removes major credit card benefits.
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Your most-loved credit card just cut one of your favorite perks. What's your next move? Do you keep the credit card even though you've just lost a major feature? Or should you close it and risk damaging your credit? The answer isn't so cut-and-dried. Here are a few things to consider.
Consider the Annual Fee
The best rewards cards come with an annual fee, something you have to consider as you decide whether to keep a credit card or let it go.
Weigh the annual fee against the remaining credit card benefits. Will you take advantage of them frequently enough? Are they valuable enough to justify paying the annual fee? If you're only left with features you'll rarely use, keeping the card may not be worth the cost.
The ongoing rewards also factor into your decision. Can you earn enough each year to make the fee worthwhile? Reviewing how much you've previously earned on this card can help you here. Consider closing the card if you'll only earn just enough rewards to break even on the annual fee.
Impact to Your Credit
Closing a credit card is risky because of the potential impact to your FICO® Scores. When it comes to your credit, there are a few things to keep in mind when you're deciding to keep a card or close it.
- Your oldest credit card boosts your credit age by showing you have more experience using credit.
- High limit credit cards can help your FICO® Scores and help you land high credit limits on other credit cards you apply for.
- Closing a credit card, especially one with a balance, can have a big impact on your credit utilization and your FICO® Scores.
How closing a credit card affects your FICO® Scores depends on a number of factors. If you have a major loan or credit card application coming up, it's smarter to wait until after you're approved to close any credit cards.
Don't Lose Your Rewards
If you ultimately decide to close your card, keep it open long enough to use up any remaining rewards. Otherwise, you'll forfeit your rewards if you ditch your credit card before using them.
Cash rewards are fairly easy to use—you can simply redeem them for a statement credit or a deposit to an eligible bank account. Consider transferring points or miles to another loyalty program or redeem them for a gift card, if that's an option.
Another Option
You may not have to close your card. You can ask your card issuer for a product change—where you switch to another credit card from that same issuer.
Before switching, confirm how the account will appear on your credit report. You want it to be a continuation of your existing account rather than an entirely new one. This way, you keep the account age and payment history and get a credit card that's a better fit.
You may need to use any unredeemed rewards before the product change is complete. Ask your card issuer whether you'll keep your rewards so you can use or transfer them if necessary.
Bottom Line
If you have your FICO® Scores in mind, closing a credit card has no benefit to the score. If you opt to keep the card, be sure to use it periodically to keep it open and active.
Get your FICO® Score from FICO, for free. No credit card required.
LaToya Irby is a financial writer with over 14 years of experience. She's been quoted and published as a credit expert in several major publications including USA Today, U.S. News and World Report, TheBalance.com, and The Chicago Tribune.