Sunday, 17 May 2020

Why You Should Never Close A Credit Card

Many people close their credit cards because they've had a bad relationship with them, they fell into consumer debt they just didn't want to deal with it and they think credit cards are bad and they think that closing that credit card will solve all their problems and nothing bad will happen. Other people close their credit cards because they don't want to pay an annual fee so say, for example, you have the American Express Platinum Card or you have the Chase Sapphire Reserve card, both those cards have annual fees of up to $400 to $500 if you get the business version even $595 or $600. Now, if you have an annual fee that high and you're not reaping all the benefits it definitely makes sense to close a card but there are other options and I'm going to be talking to you about that towards the end of the article 

Closing Your Credit Will Decrease Your Score

The main reason you don't want to close a credit card is that it will tank your score. I have seen friends in real life whose scores tank 40 50 even 60 points when they closed a credit card. When you close a credit card it's your first credit card that credit card gives you that history with your account, your history makes up a good portion of your credit score.


If your first credit card has a limit of $1,000 and you'll only have three cards and in total, you have $3,000 limit and you take that credit card off and say you have a little bit of a balance you go from a $3,000 utilization limit to a 2,000 utilization limit and then if you have a balance and that goes up, your score goes down. 

Figure Out What Your Options Are Before Cancelling A Credit Card

The main thing you want to do before canceling a credit card is to figure out what your options are. There are a ton of options you are not just limited to closing and opening cards, you can do something called "downgrading a card" like I mentioned earlier, if you have a high annual fee card what you can do is call in and be like hey, I have this card and I'm not sure if I want to keep it the annual fee is high is there any way we can work something out and most of the time you'll get hit with something called a retention offer. These credit card companies don't want you to downgrade or close your card they want you to keep that card because they still are profiting, and they're going to do as much as they can to keep you on with that card especially if you talk to the right representative. So most of the time they're going to offer you a point incentive or they're going to give you a discount on your annual fee. This has happened a ton of times if this happens to you please don't be surprised but know that this is in your arsenal

Downgrading A Card

retention offers are definitely one way to stay in the credit card game with that high annual fee card but that is not your only option if you don't want that card because of the annual fee and you want to get rid of it don't close that card but downgraded. If we're talking about the Platinum card, for example, you could downgrade that card to the regular American Express green card which has a lower annual fee than the Platinum does or if you're with a Chase Sapphire reserve you can downgrade that card to the regular Chase Sapphire or you could do something else and this is called "product changing".

A lot of people often forget that you can product change a lot of cards there are certain rules, for example, I want to be able to product change the Platinum Card to the American Express blue business plus credit card because the Platinum Card is considered a charge card so there are different rules like this. But it's not that difficult to learn. If you are within the chase ecosystem and you have the Chase Sapphire Reserve and what you can do is instead downgrade or product change that card into a freedom card and freedom unlimited or a regular sapphire card or even the Chase Sapphire Preferred but there are other options so don't ever close a credit card.

Whenever I see people unknowingly close their credit cards I see their points just tanked. If you have a Macy's card, TJ Maxx card, if you have a card with any retail store that you don't use and you don't like them anymore don't close it you can cut up the card don't use it just leave it open and maybe every once in a while you can leave a subscription-like a Netflix invoice or your Spotify invoice to pull out of that card and just set up automatic payments. Let there be history on it, just keep that card to have that account history and to have that utilization help your credit score but do not close your credit card.

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