Archives for October 2007

You may have already heard from me and other articles that canceling a credit card does not help your credit score. But sometimes, you just have to do it. For example, you may have an annual fee or some ongoing customer service nightmare.

What’s happens to my credit score if I cancel? While it won’t help my credit score, it likely also won’t hurt it very much either. As explored previously, the two factors that matter are credit limit utilization and average age of accounts. As long as this card doesn’t comprise a huge chunk of your total available credit limits, it shouldn’t affect your utilization ratio very much. In my case, this AmEx Gold card is a charge card and doesn’t even have a credit limit, so it won’t matter at all. As for the average age of accounts – your account is already opened! Closing it won’t make it any older.

Still want to cancel? Here are some tips to keep in mind:

#1 Consider simply switching to another type of card with better features or annual fees.
If the reason for closing the card is to avoid paying an annual fee, perhaps try to simply convert the card to another style offered by the same issuer. For example, I could ask to be transferred to a card which has no annual fee. They might say yes, they might say no, but it’s worth a try.

For example, the more heavily-pushed Citi Platinum American Airlines Card has an annual fee of $50, but the lesser-known Citi Bronze American Airlines Card has no annual fee (albeit with less rewards). So instead of canceling your platinum card, you could just convert it to a less valuable metal but still be able to earn a few quick miles when needed.

#2 Combine the credit limits with another existing credit card.
Similar to above, you can simply try to “move” your credit limit from the card you want to cancel onto another existing card you want to keep (within the same issuer.) This way, you can get rid of one card while keeping your nice credit limit and maintaining your credit score.

#3 Go fishing for some financial encouragement to stay
When you call to cancel, you will usually be transferred to a special person trained to handle cancellations. This may also be referred to as the “Retention”, “Loyalty”, or “Member Relations” department. The primary goal of this person is to keep you a customer, using whatever means at their disposal.

Accordingly, your goal here is to find out what they have to offer you. First of all, be nice! Help them to help you. Instead of asking sternly to cancel, you might say something like “I am thinking of canceling because my interest rate is too high.” This would encourage the rep to offer you a lower interest rate. For my situation, I might say something like “I don’t like this card enough to pay $125 next year, it seems a bit steep”. Ideally, this would lead to something like a $100 credit to stay, another annual fee waiver, or some other financial incentive. They may have a variety of things in their goodie bag, and it may change from time-to-time due to quotas or whatever.

I usually call early, usually as soon as I get the sign-up bonus and I know there are no other redeeming features. For example, I have been offered a $25 gift card to stay another 3 months by Discover. After that time period passes, I can call again.

#4 Sometimes you’ll just get lucky
One time while canceling another American Express credit card, I just didn’t like what they had to offer and simply canceled. To my surprise, I got a pro-rated refund of the remaining part of my waived annual fee with my final statement! Out of the $90 fee which I didn’t have to pay, I got a $63 credit. The only takeaway here is that if you really want to cancel, just go ahead and do it. If I had waited until the last moment, my prorated annual fee would have been just a few dollars.