Managing credit cards can be tricky, especially when faced with the dilemma of whether to close a card with a high annual fee. Closing a credit card might seem like an easy way to cut costs, but it can negatively impact your credit score by reducing your credit line and shortening your credit history. Fortunately, there are strategic ways to close a credit card without hurting your credit profile. Here’s a detailed guide on how to close a credit card the right way.
Why Closing a Credit Card Can Be Risky
Credit cards play a crucial role in maintaining and building a healthy credit history. When you close a credit card, you eliminate the available credit line associated with that card and potentially shorten your credit history. Both factors can lower your credit score, which is why financial advisors often recommend keeping credit cards open whenever possible.
However, some credit cards come with high annual fees that might not justify their benefits. When you find yourself in this situation, it’s important to close the card strategically to avoid unnecessary damage to your credit score.
Two Effective Strategies to Close a Credit Card Without Hurting Your Credit
There are two main approaches to closing a credit card while preserving your credit score: downgrading your credit card and merging credit cards. Both strategies require the cards to be from the same bank and involve careful communication with your credit card issuer.
1. Downgrade Your Credit Card
Downgrading means switching your current credit card to a different card within the same bank and the same family of cards, but with a lower or no annual fee. This approach allows you to keep your credit line and credit history intact while eliminating the expensive annual fee.
For example, if you have an American Express Delta SkyMiles Gold card with a $95 annual fee, you could call the customer service number on the back of your card and ask if you can downgrade to the Delta SkyMiles Blue card, which has no annual fee. This way, you keep the credit line and credit history, but stop paying the annual fee.
Downgrading works best when:
- Both cards are issued by the same bank.
- The cards belong to the same family (e.g., Delta SkyMiles cards within American Express).
This method lets you retain the best of both worlds — maintaining your credit score and history while reducing costs.
2. Merge or Combine Credit Cards
Merging credit cards means consolidating two or more cards from the same bank into one account, effectively closing the cards you no longer want without losing your total available credit line.
Using Chase Bank as an example, you might have a Chase Sapphire card with a $95 annual fee and a Chase Freedom card with no annual fee. If you want to avoid paying the annual fee on the Sapphire card, you can call Chase and request to merge the two cards. The key is to specify that you want to keep the card without the annual fee active.
When merged, your credit limit combines (e.g., $3,000 on Sapphire plus $1,000 on Freedom becomes a $4,000 credit line), so you don’t lose available credit. This is important because a higher credit limit positively impacts your credit utilization ratio, a major factor in your credit score.
One downside to merging cards is that the credit history of the closed card might not carry over. The merged account will retain the credit history of the card you keep active. For example, if the Freedom card has one year of history and Sapphire has three years, merging and keeping Freedom active means losing two years of credit history. Despite this, many experts recommend prioritizing maintaining credit limits over preserving some length of credit history because credit utilization has a bigger impact on your FICO score.
Important Tips When Using These Strategies
- Always call your credit card issuer: Use the customer service number on the back of your card to discuss your options directly with a representative.
- Be clear about your intentions: When merging cards, explicitly state which card you want to keep active to avoid accidentally retaining the card with an annual fee.
- Confirm no annual fees on the downgraded or merged card: Double-check that the new card option does not carry an unwanted fee.
- Keep track of your credit limits and history: Make sure your credit line stays strong, and understand the trade-offs regarding credit history length.
Who Should Consider These Strategies?
These strategies are ideal for anyone who:
- Has credit cards with high annual fees that no longer justify their cost.
- Wants to maintain or improve their credit score while reducing credit card expenses.
- Has multiple cards within the same bank and wants to simplify their credit portfolio.
- Understands the importance of credit utilization and credit history in credit scoring.
Conclusion: Keep Your Credit Healthy While Managing Costs
Closing a credit card without a plan can harm your credit score by reducing your credit line and shortening your credit history. However, by using strategies like downgrading your card or merging credit cards within the same bank, you can eliminate unwanted annual fees without losing the benefits of your credit history or credit limit.
These approaches require proactive communication with your credit card issuer and a clear understanding of your credit goals. Prioritizing credit line retention often outweighs the slight loss of credit history, especially when managing multiple cards.
Ultimately, closing a credit card the right way means making informed decisions that protect your credit health while minimizing costs—an essential skill for anyone looking to maintain strong financial standing.