Credit cards are an incredibly powerful financial tool. They can help you build credit, earn rewards, and even check off that vacation list for a fraction of the cost. I have personally used dozens of credit cards over the years to travel the world. I also canceled my fair share of cards that lost their appeal and just weren’t worth the annual fee.
Canceling credit cards can be an integral part of a good rewards strategy. Of course, you want to think about it and make sure it doesn’t hurt your long-term credit or rewards goals. That being said, here’s how to decide which credit cards to cancel and how to do it while minimizing any negative impact.
Credit cards you should consider canceling
If this makes you reconsider your current credit card strategy, great! You need to constantly evaluate your credit cards and make sure they work for you. So what exactly should you look for in a credit card? Above all, a credit card should be rewarding and aligned with your financial and travel goals.
With that in mind, here are the six types of credit cards you should consider canceling:
Cards you don’t use
It goes without saying, but if you’re not using a card, it might be time to ditch it. Credit usage plays an important role in your credit score, and not using a card is not calculated favorably. If you don’t regularly swipe your card and earn rewards, you should consider canceling it.
Cards with high annual fees
It’s also not about earning rewards. If you have a premium credit card and aren’t taking advantage of its statement credits and travel benefits, it might be time to cancel the card.
Credit cards with high annual fees often come with premium travel perks. Sometimes these perks aren’t as useful as expected. If you find yourself spending more to take advantage of an airline fee credit or letting credits expire, it might be time to reassess whether you need that card in your wallet.
Cards with repeating benefits
The credit card landscape has become competitive lately, with lower annual fee cards like the Capital One Venture Card and Chase Sapphire Preferred® Card offering benefits comparable to premium credit cards. If you have multiple credit cards in your wallet that offer overlapping benefits, such as Global Entry/TSA PreCheck credits and Priority Pass Select membership, it might be time to consider canceling one of them. these cards.
Why shell out hundreds of dollars in annual fees every year for benefits you could get cheaper elsewhere? Evaluate your current line of credit cards and determine which benefits are repetitive and which cards you can downgrade or drop.
Cards with benefits that cost you dearly
It’s easy to get caught up in the value of a credit card’s benefits and think, “I got what I paid for!” » Be honest with yourself about the value of these benefits and what they are costing you.
For example, if you are paying more to stay at Marriott hotels in order to use the $300 Bonvoy Brilliant credit, the Marriott Bonvoy Brilliant™ American Express® Card may not be as good as you think. It may be best to cancel the card or switch to the Marriott Bonvoy Business™ American Express® Card for convenient benefits at a lower annual fee.
Cards that are not rewarding
Having a travel rewards card should be rewarding. Take a look at your spending over the past year and think about your upcoming purchases. Does your credit card offer significant bonuses in these spending categories? If not, you may need to change. If you’re not earning the maximum rewards on your biggest spending categories, it might be time to cancel and get another card.
For example, the Platinum Card® from American Express is one of the best travel cards, not because the category bonuses are particularly attractive, but because of the statement credits and lounge benefits it offers.
If you spend a significant amount on travel each year, you may be better off with the sapphire stash. The card offers 3X on all travel purchases and some of the same travel benefits as the Platinum card.
The type of rewards you earn is just as important as the rate at which you earn them. If you’re no longer getting value from your Chase Ultimate rewards, it might be time to upgrade to a card that earns one of these rewards:
Or maybe you’ve had enough of Hyatt points after the recent changes to the reward charts. It might be time to upgrade to a card that earns transferable rewards, so you have more options for using your points.
When there are alternative cards with lower annual fees
Not all rewards credit cards are worth their annual fee, and if you can get similar benefits for less, you should explore this option. For example, people who want to earn bonus points on their grocery purchases often opt for the American Express® Gold Card. But the card has an annual fee of $295, which may not be worth it if you don’t use its various benefits.
If all you want is to earn bonus points on grocery spending, you might want to upgrade to the Blue Cash Preferred card from American Express®, which earns 6% cash back on purchases. groceries for a much lower annual fee of $95. Amex Blue Cash does not offer travel benefits, but it will save you money on groceries. If you want grocery spending categories as well as travel perks, consider the Citi Premier® Card, which also has a $95 annual fee and earns 3X points at supermarkets. Granted, the Citi Premier doesn’t earn the same awards as the Amex Gold, but many of their transfer partners overlap.
Conclusion: It’s good to assess your most valuable card benefit and see if there is another credit card out there that offers a similar benefit for a lower annual fee.
How canceling a card affects your credit
If you play well, canceling a credit card will have minimal impact on your credit. The impact of canceling a card largely depends on the age of the account and your overall usage rate. If you cancel a newer card, you will see a temporary drop in your credit score. This change is often temporary and will recover as you develop good credit habits.
On the other hand, canceling an old card can have a long-term negative impact. Indeed, the average age of your account, which is responsible for about 15% of your credit score, will decrease. That’s why it’s always best to downgrade old credit card accounts to cheaper or no-annual-fee cards. That way, you don’t lose that credit history, but you can still lower your annual fee or switch to a card that better suits your needs.
Alternatives to canceling a credit card
Canceling a credit card isn’t the only thing to do if the card isn’t working for you. Downgrading your card might be a better decision, especially if the card you’re looking to remove is one of your oldest accounts. This way, your credit history stays intact and you get a card that better matches your spending habits.
For example, many people who no longer feel served by the Sapphire Preferred card will upgrade to the Chase Freedom Unlimited® at no annual fee. They save $95 a year and earn 3% cash back on popular spending categories like restaurants and pharmacies. These people might also prefer the simplicity of a cash back card to a complicated rewards program.
Sticking to a card with no annual fee is easier to justify than a card with an annual fee that doesn’t align with your spending habits and travel goals.
If you want to cancel a card and have multiple accounts with that bank, consider assigning the line of credit to another card. For example, if you have both a Chase Sapphire Reserve® and a Chase Freedom Unlimited but are looking to cancel the former, you can call Chase and ask to move the line of credit from the reserve to Freedom Unlimited. Thus, your usage rate will not be impacted when you cancel the card.
Do Unused Credit Cards Affect Your Credit Score?
Downgrading your card might be a good decision, but what if you don’t use the new card much?
You may be wondering if unused credit cards have an impact on your credit score. The answer is yes.
Credit utilization represents 15% of your credit score, and zero utilization can have a negative impact. Banks want to see that you can use credit responsibly by charging and paying off your cards on time. It’s hard to gauge when you’re not using a map at all.
If you don’t use a credit card for a long time, your bank may close it for inactivity. If this happens with your oldest credit card, it can negatively affect your overall credit score.
An easy way to spend on your card and keep usage low is to automate some monthly expenses. Load your streaming subscription to your card and set up automatic payment so you don’t forget to pay your card. It’s a great way to spend a minimum on a card without the added responsibility of tracking another account.
How to cancel a credit card
You can cancel a credit card by calling your bank and speaking with a customer service agent. Some banks even allow you to cancel via secure messages or chat conversations. I have successfully canceled Citi cards through the secure message center. Meanwhile, American Express made it easy to cancel my Marriott Bonvoy Brilliant Amex card via chat when that card lost appeal.
The bottom line
Revaluing your credit cards is key to a good rewards strategy, and canceling a card can be a good decision. After all, if a credit card stops being useful, you don’t want to keep paying annual fees or letting it take up space in your wallet. Rewards cards are meant to be rewarding, and if they’re not, you should feel good about canceling or downgrading them.
Consider account age and alternatives before giving a credit card ax. If you decide to cancel a card, do it the right way. With these tips, you should be well equipped to do so.