When To Cancel Your Credit Cards

When To Cancel Your Credit Cards

Million Mile SecretsWhen To Cancel Your Credit CardsMillion Mile Secrets Team

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Congratulations!

You were approved for a credit card with a BIG sign-up bonus – like the 75,000 AAdvantage card  – and have completed the minimum spending needed to get the bonus miles.

So, when do you cancel the card?  After all, you have received the miles in your account and don’t need the credit card any more!

Before cancelling, read this post to find out if you will lose the miles or points which are already in your account or not.

Do Not Cancel Immediately

I would almost never cancel a card as soon as I complete the minimum spending requirements.

That’s because banks are becoming more sophisticated at detecting repeat patterns of:

  • Applying for a credit card and
  • Cancelling the credit card as soon as the sign up bonus miles have posted in your account

This behavior makes it unprofitable for banks to issue you credit cards.  You may even be put in purgatory blacklisted from applying for credit cards from that particular bank.

There are reports of folks on FlyerTalk who have been unable to get any new credit cards issued by Chase.  Now, that is a scary thought, because Chase has so many mile and point earning credit cards!

Instead of cancelling the card immediately after you get the sign-on bonus, consider using it for a few small purchases every month.

2 Reasons To Cancel A Credit Card:

I only cancel my credit cards when it makes sense for me to cancel them.

So when does it make sense?

1)   When I need to get approved for another credit card with a sign up bonus:

Some banks will only allow you a certain number of credit cards or will set a TOTAL credit line across ALL your cards.

In an earlier post, “Why The Chase “6-Month Rule” Is a Myth!,”  I wrote:

“Most banks set a limit on the TOTAL credit amount which they will extend to you.  This limit is based on the bank’s internal risk-taking (or underwriting) policy, your income, length of credit history, and other variables on your credit report.

You may reach this total limit with 2, 3, or 4 or more credit cards, depending on the credit limit assigned to each credit card.

For example, $20,000 in total credit can result in:

  • 4 Credit Cards with a limit of $5,000 each
  • 3 Credit Cards with a limit of $6666.67 each or
  • 2 Credit Cards with a limit of $10,000 each”

In this situation, it is possible to call up the bank’s lending department and agree to either reduce your credit line on 1 or 2 existing cards or to cancel an existing credit card in order to get approved for a new card.

You lose this leverage, if you cancel your card as soon as you have got the bonus miles or points in your account.

So I prefer to wait until I absolutely have to cancel the card.

Waiting also builds good will with the credit card companies so that they will keep issuing me credit cards!

2)   To avoid paying an annual fee:

The main reason why I cancel my credit cards is because the annual fee for the 2nd year is due.

Remember that the sign on bonus on many miles and point credit cards is waived for the first year, but unless the card is a great everyday credit card, I will cancel it.

Usually, whenever I call to cancel a card (2 to 3 months before the annual fee is due), I am always transferred to the “retention” department where a “specialist” (a person whose job is to get you to NOT cancel the card on that phone call) tries to convince me to keep the card.

Usually he or she will offer me a sweetener such as a $50 statement credit, or 2,500 bonus miles for keeping the card open etc.

I will not cancel the credit card if the retention offer is lucrative enough (i.e the value of the sweetener is more than the annual fee), though this has rarely happened to me.

If the sweetener is not lucrative enough, I will keep the card open until I get the bonus miles or points in my account and then call back later and cancel the card!

Will cancelling a card reduce my credit score?

It might.

That’s because your credit utilization ratio (ratio of amount you owe to the total credit available to you) will increase once you cancel a card.

And, your credit utilization ratio accounts for 30% of your credit score.

Now, if you have many credit cards, and don’t carry much debt on your credit cards, the decrease in your credit score will be slight.

Don’t cancel your older credit cards, because the length of your credit history factors into your credit score!

Bottom Line:

  • Don’t cancel your miles and point credit cards as soon as you get the sign-up bonus.  That is a red flag which may get you blacklisted by banks.
  • Cancel your miles and points card only when you benefit, such as not having to pay the annual fee or getting a new credit card with a sign-up bonus.
  • And if you do cancel, try to get a retention bonus or some other goodies!

When do you cancel your cards?  Tell us about it in the comments!

Don’t forget that each comment made, on any entry in the blog,  up to 7:00 pm CST on June 21, 2011 gets an entry into a drawing for a free TrackItBack luggage tag set worth $50!

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153 comments

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I am a Newby at miles and applied for the Chase Sapphire Preferred because the annual fee of the Chase Sapphire Reserve scared me. In any case I got approved but did not reach the required spending limit in order to receive the 50,000 bonus points. Now my annual fee is about to come due and I'm trying to decide if I should cancel or downgrade to the Freedom card to avoid the annual fee and the possibility of lowering my credit score. I'm also looking into applying for the Reserve card after reading your post on how to reach the spending limit. A bit late but it's a start. What should I do?

Thanks for all your good posts! I have a question on closing cards. I have a number of duplicate cards earning for the same airline and want to close most of them out because they all have annual fees. Three of them are with Citi. Do you recommend applying for another Citi card before I close them or after?

I just called to cancel my Chase Business Ink card. I have had the card for 3 years, never paid interest on the card, spent a large amount at first and then intermittent amounts through the years. I was never referred to a "retention department" or offered anything. The woman just said she would close it. When I asked if she would move my credit line over to another of my personal Chase cards she said she couldn't because they were different types of cards even though when I opened the Business card, I moved credit from personal to business to do so. I am afraid of my personal credit getting dinged now if that credit amount is not moved over to my personal. The yearly fee of $95 comes out on February 25th. Should I just call closer to the time and ask another rep to close it and hope they offer to wave the yearly fee?

Echoing Evan's question, the Citi AA MC 50K offer states "bonus miles are not available if you have had a Citi® / AAdvantage® Platinum Select® MasterCard® opened or closed in the past 18 months." This would imply that the count-down of 18 months begins from the moment you close the card, which would suggest closing it sooner rather than waiting until the annual fee hits.

Daraius, any thoughts?

I can’t find an answer to this question anywhere. For the purpose of churning, is the amount of time that must pass between receiving a bonus based on the previous card’s APPROVAL date or its CLOSING date? In other words, say I was approved for the Chase Sapphire Preferred in 1/15, get the bonus in 3/15, and then close the card in 7/15. Assuming there is a 2-year wait period between churns, do I need to wait until 1/17 (based on the last card’s approval date) or 7/17 (based on it’s closing date) before being eligible to receive the bonus again?

I can't find an answer to this question anywhere. For the purpose of churning, is the amount of time that must pass between receiving a bonus based on the previous card's APPROVAL date or its CLOSING date? In other words, say I was approved for the Chase Sapphire Preferred in 1/15, get the bonus in 3/15, and then close the card in 7/15. Assuming there is a 2-year wait period between churns, do I need to wait until 1/17 (based on the last card's approval date) or 7/17 (based on it's closing date)?

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