The decision depends on the card—and your reasons for wanting to let it go.
At some point in your financial life, you will probably consider canceling a credit card.
Maybe you don’t use it very much—or at all. Perhaps you don’t want to pay a high annual fee for perks you never use. Maybe you’re a one-card kind of consumer, and just got a new one that earns you a lot more rewards.
First, it’s worth considering the pros and cons of closing a credit card account. Canceling might streamline your life and save you a little money, but it could also ding your credit score or cause you to lose hard-earned rewards.
Here’s what to think about before you call customer service.
What’s your rationale?
There are plenty of reasons someone might want to dump a card. Your particular reason determines how you should go about making the decision.
Perhaps the card encourages you to overspend. You might share your card with someone who no longer shares your life. Maybe you’re fed up with an issuer’s terrible customer service. If you’re canceling for personal reasons like these, you mainly want to:
- Be aware of the potential impact to your credit score
- Make sure not to lose any of the rewards you may have earned.
We cover those topics more below.
The calculus is a little different if you want to cut up your card for practical reasons: You don’t use the card, you got a new one you like better, or you’re paying an annual fee for perks you don’t use.
Should You Keep a Card You Don’t Use?
Just because you own a credit card doesn’t mean you have to use it. In fact, there are some cards that are worth holding on to just for the perks they can afford, but not worth putting much spending on. At GigaPoints we call these “drawer cards” and “wallet cards.”
The decision to keep an underused card mostly depends on whether it has an annual fee. If not, you should probably keep it. The card isn’t costing you anything, while canceling it could ding your credit score. (More on that below.)
If the card does have an annual fee, the next question is whether any benefits you get from the card outweigh that cost—and keep in mind that some of those benefits may not be obvious.
Let’s take an expensive example: the Chase Sapphire Reserve card, which charges a hefty $550-a-year fee.
Reserve cardholders get an array of fancy perks, including access to airport lounges and credits for Peloton memberships. If you’re not making use of those, the card may or may not still be worthwhile, depending on how you use it. The Chase Sapphire Reserve pays generous rewards (3x) on travel and dining charges, for instance.
GigaPoints can provide personal data points that are useful for making a decision. Our AI-driven Analyzer tells users what rewards they can expect to earn from different cards, based on their past spending patterns. Plugging in your accounts will help reveal which cards are worth using.
But what if you’re not using the perks or the card? It still might be worth keeping, if you’ve racked up a lot of rewards. Let’s say you have 50,000 Chase Ultimate Rewards—the loyalty points the card earns. You could cash them out and get 1 cent per point, or $500. But you can also use them to pay for travel through the card’s booking portal, at a value of 1.5 cents per point. That’s the equivalent of $750, or $200 more than the annual fee. Once you cancel the card, that’s no longer an option so make sure you….
Don’t Lose Your Rewards
If you’ve accumulated points, miles, vouchers, statement credits or other rewards with your credit card, canceling your card could void them.
Third-party rewards—like hotel points or airline miles—generally won’t be affected. They’re held in your hotel or airline loyalty programs, completely separate from your credit card.
If you have points that are specific to a credit card or bank, like Chase Ultimate Rewards, American Express Membership Rewards, or Capital One Miles, make sure to use, cash out, or transfer them before you cancel.
There’s often a lag between when you use your card and when the points for that spending are credited to your account. It’s smart to keep your card for a couple of months without using it, sweep out all your accumulated rewards, then close the account.
Canceling Can Hit Your Credit Score
It’s completely counterintuitive, but having one less credit card can have a negative effect on your credit score. These scores rate customers’ creditworthiness, and can determine everything from whether you get approved for a card to how high the interest rate is on your mortgage.
Because of the way credit scores are calculated, you could take a hit on two fronts by canceling a card:
- Age of accounts. The average age of all your financial accounts makes up about 15% of your credit score, according to Experian, one of the world’s biggest credit reporting companies. If you cancel a card that you’ve had for several years, it could lower your credit score.
- Credit utilization. This is a bigger one, making up about 30% of your credit score. It’s a ratio of how much you borrow to how much credit you have access to. The more credit you have access to but don’t use, the better. Canceling a card with a high credit limit, in particular, could ding your credit score.
How much does all this matter? It depends. If you have excellent credit, small changes aren’t likely to affect your score very much. And if you’re not looking to take out a mortgage, sign a lease, or apply for a bunch of credit cards soon, it might not matter anyway.
But if you’re trying to boost or maintain your credit score, it makes more sense to keep that card and try to eliminate the fee.
Try to Go Fee-Free
If you’re planning to cancel a card with an annual fee, it’s worth calling your issuer first. Some companies will waive annual fees for loyal customers. Or, they may counter-offer with a discount or credit.
Alternatively, you can switch to a no-fee or lower-fee card from the same issuer. Your account will stay open, which can help maintain your credit score. (But your credit limit may be lower.)
Keep in mind: You don’t normally get a welcome bonus for a card you’re downgrading to. And if you’ve been earning points with your card, be aware that in some cases they won’t be as valuable after you downgrade. If you have the Chase Sapphire Reserve card, Ultimate Rewards points are worth 1.5 cents in the company’s travel-booking portal. With the cheaper Chase Sapphire Preferred card, they’re worth 1.25 cents each.
Cancel at the Last Minute
It doesn’t make sense to cancel a card with an annual fee six months into your membership year. Most credit card companies won’t refund the annual fee if you cancel your card more than 30 days after it’s charged, so you’ll just be losing money. But if you downgrade to a no-fee card from the same issuer, you can probably get a prorated refund.
Keep that Drawer Card Safe
One risk of hanging onto a card you don’t use: losing track of it. You don’t need the hassles that come with fraudulent charges or identity theft. So stash that card somewhere secure.
You also might want to use it to auto-pay a small monthly bill; there have been cases of cards being closed by issuers for being inactive for too long. And you always want to be the one who cancels, not the one who gets canceled.