If you are playing the Credit Card reward game then chances are you have dozens of Cards that demand an Annual fee. Typically people sign up for these for the first year signup bonus, good ones can range from 50,000-100,000 points, which can be valued at thousands of dollars if used correctly.
For year two onwards though, most cards suddenly become a very expensive addition to your wallet – with annual renewal fees ranging from $50-$500 per card, and no more big bonuses (though some cards do offer a smaller annual renewal bonus, like the Chase Hyatt Card that comes with 2 free nights in ANY Hyatt in year 1 and 1 Free Night in a Cat 1-4 each year when you renew, not awesome, but possibly justifying the fee.
However, once you have dozens of cards, you simply can’t justify keeping them all, and if you are simply at a stage of debt reduction this applies to you too – removing the fee puts money back in your pocket, but there are several things to consider when you do:
You Credit Score will be reduced if you cancel a Credit Card
Ironically, the person who cancels cards in order to be more in control of their credit, and save money on fees is suddenly categorized as more of a Credit Risk than the person who leaves them all open and eating up money. There are two factors at play regarding closing accounts and your credit score:
1. Age Of Accounts – your length of Credit History is one criteria for Credit Score Calculation, if you have held a card for many years that open credit line adds depth to your score, closing it now will reduce your credit history to the next longest card.
2. Credit Utilization – This Credit Score Criteria is a percentage. If you have a balance of $1,000 during any given month and you own two cards, each with a $5,000 limit, closing one of them will change your Credit Utilization from 10% to 20% and impact your score negatively.
Solution to removing annual fees, whilst protecting your Credit Score
Firstly, if you are calling about a Card that has points that are linked internally to that card, such as Amex Membership Rewards, Chase Ultimate Rewards or Citi Thank You Points make sure you transfer them out of the account, so they aren’t forfeited.
The difference between Third Party Rewards and Banks Rewards
Third party programs, or programs that are Affiliated with a different loyalty program would include:
Hilton, Hyatt, Marriot, SPG, American Airlines, United, Delta, British Airways, Virgin Atlantic Et al.
Bank or Card Rewards Programs (Internal Programs)
Citi Thank You Points, American Express Membership Rewards, Chase Ultimate Rewards Et al.
If you are in any of the Banks rewards programs and have points balances transfer them out to your Transfer Partner of Choice – Amex and Chase have a bunch of Transfer Partners to pick from, and Citi is more of a Cash Back/Travel program currently, however if you are pulling out of these programs and transferring away from their cards make sure you cash those points in first, else you will risk losing them all.
Conversely, if your card is a Third Party card like the Chase British Airways card, or SPG Amex, they have already sent over the points, and won’t claw them back.
Call up your Credit Card provider and before going any further with the process explain the following:
You want to cancel this card, and you want to Transfer the Credit Line to another card you have with them, or if you do not have any card that you want to transfer to you want to Downgrade the card to a no fee card, so that you can keep the credit line.
It is worth noting that you might have options to transfer that are not immediately obvious, since some companies offer a different front end, but are the same provider – an example of this is with Bank of America and the Fidelity Investments Rewards Card. Both are operated by Bank of America’s credit card company, so you can transfer lines between the two, even though you might think you have only one card with Bank of America.
Therefore it is always good to ask- ‘do I have any other cards with you guys on my account that I could transfer the balance to?’
Be Prepared for the Hard Sell
It is likely that you will be transferred to an agent who will attempt to convince you to stay with the card, they may try to talk you out of your decision, and may even use scare tactics – one classy guy I spoke with quoted me the following regarding my Chase BA Card:
“you agree that in terminating this card you will forfeit all of your BA Avios”
Well, actually when pressed what he meant to say was
“if you have any pending charges on your account they will not be sent over to your BA Avios account”
Quite different. Be prepared for Scare Tactics, but there are also times when you could lose all your points by closing the Accounts – so make sure you Transfer them out prior to the call if they are part of the Banks Program:
When to make the call to transfer your Fee Paying Card
I personally like to wait until about 10 months into the card history before switching over, just to be on the safe side. I have never had a company clawback any miles or points earned, but have heard that it can happen if you close down or transfer within the first few months of the Card history – which would defeat the purpose in getting the sign up bonus.
What if the second year fee has already posted?
The good news is that most card companies seem to allow a period of time after the fee has posted to your account for you to call in and cancel and have them reverse the fee – Chase have 60 days, and whilst there is no hard or fast rule I believe most other companies have at least 30-60 days also, so once you see a fee, call in, transfer to a no fee card and get the fee refunded.
Know the Value of a Point
Lastly, there is a fair chance that you will hit a person who tries to bribe you to stay, this could come in two ways:
1. Waiving the Second Year Annual Fee (uncommon, but not unheard of, if it is offered take it, as most of these fee paying cards have other perks like Status with Airlines or Hotels).
2. A Points Incentive to stay and Pay. If you are offered a points incentive to stay, but they ask you to pay the fee still you are effectively buying points at the rate of the Fee. As such, you need to know in advance what you value these points at, perhaps 1-2cents each. Therefore if you’re card has an annual fee of $95 and you value your points at 2 cents each AND you want to buy them, they have to offer you at least 10000 points or miles to make it a good decision for you – if they offer less then you are paying that much more.
The value of the point is subjective, so think hard about what it is really worth to you and if you really want to buy them for that price before any offer is made, else you may make a poor decision.
You might also like:
Leave a Reply