Managing Credit Cards and Annual Fees

Financial Planning

We’re doing a bit of housekeeping here at TaggingMiles, partially spurred, because we received this question via Ask TaggingMiles, from Scott. His question:

I always see posts about great credit card sign up bonuses and such. How do you and others sign up for all these offers and manage all the credit cards? Do you end up canceling most of the credit cards (especially with the yearly fees) — if so, how do you deal with the backlash on your credit score?

First off, I am not an expert on FICO credit scores. That said, I’ll offer my thoughts from my own personal experiences.

First: Managing all the credit cards

I’m old school when it comes to managing my credit cards. My wife and I have a spreadsheet, where we note the credit card (last 4), bank, when we got it, and then have a column for each month. We pay the cards each month (no, we’re not automated, which would be more efficient), and when we get close to the annual fee, we call and either downgrade to a no annual fee card (first choice), accept a retention bonus that offsets the annual fee (second choice), or cancel the card (absolute last choice).

Second: Managing the Credit Score

There are others that have great posts about how your credit score is impacted. Doctor of Credit has a great post about how your FICO Score is calculated. I’ll summarize here, and hopefully the Doctor won’t take issue:

  • 35% is payment history – aka, if you pay your credit card bill every month, on time, you’re set.
  • 30% is Credit Utilization – in other words, if you have $100k available credit, and you only have a $1k balance, your credit utilization is 1%.
  • 15% is Length of Credit History – Whats the average age of your accounts?
  • 10% is Recent hard pulls. A Hard Pull is what happens when you apply for a card. This is different than a Soft Pull. Soft Pulls don’t impact you. Hard Pulls do.

So you’d figure, based on all of this great information, that new account applications don’t really count nearly as much as your credit utilization, and consistent on time bill payment.

Wrapping Up

I think whenever you play the credit card churning game, you need to be conscious of the fact that every move has an impact. Whether it is closing or downgrading a card, or applying for a new one. The biggest concern I have, is seeing some of the talk on FlyerTalk about folks getting shut down by Bank of American for Alaska Airlines cards, references include a post from Gary Leff at View from the Wing, in which he references two Flytertalk Posts, here, and here. As far as other banks, I haven’t seen a whole lot of adverse actions. In fact, for Chase, I’ve been successful in getting credits for the annual fee, and Citi has generally offered either an annual fee credit or a retention bonus that exceeds the value of the annual fee.

2 thoughts on “Managing Credit Cards and Annual Fees

  1. IMO, the effect on your credit score should never really play a part in whether you cancel or not. The score impact is minimal and doesn’t actually fall off your report for 7 years, if you can downgrade instead but it’s not a big issue for most people.

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