Closing a credit card could be a bad idea for you because you may be eliminating your credit line and your credit history, which is completely necessary to maintain or build a healthy credit history. However, there are some credit cards that have a very high annuity, and therefore, it’s going to wind up costing you a lot of money. Those are some of the very common questions that some people have. This is why you need to know the right way to close a credit card.
Ideally, you shouldn’t be closing any credit cards, whatsoever, but if you must, it doesn’t mean that you cannot close them. It just means that you can only if you have the right strategy to do so.
There are two different strategies that you can apply to close your credit card the right way. The very first one is to downgrade your credit card. For that to work, you need to have cards in the same bank.
It has to be within the same bank, and it has to be within the same family of credit cards. For example, American Express (AmEx). When you take a look at AmEx, you will find multiple families of credit cards like:
- Blue Cash family
- AmEx Gold
- AmEx Green
- Delta SkyMiles and others
The right way to close a Credit Card: Keep your credit history and your credit line
- Downgrade the credit card
They have plenty of different families within the same bank; when it comes to downgrading, you can only do that if these two criterias are met. Meaning, it has to be from the same bank, and you can only downgrade within the same family, so Blue Cash, or down to Gold, or down to Green. For the purpose of this example, we’re going to talk about the Delta Sky.
If you don’t want to lose the credit line and you also don’t want to lose the credit history, you can take your card and call the 1-800-number in the back of the card, and just simply ask the rep, “Hey, is there a way I can downgrade this card?” and it’s very likely to find an option that doesn’t have any annuity.
What they can do is that they take that card, and they downgrade it. In this case that’s what they would do and you would get the Delta SkyMile Blue. That card, in particular, has an annuity of $0. That way you would be able to keep the credit line that you had there.
That means that your credit score is not going to be impacted and same thing with the credit history. That’s one way in which you can “close” your credit card in a very effective way, with the strategy, without impacting your credit score.
- Merge the credit cards
The second strategy that you could apply is just simply merging the credit cards. Merge credit cards, some people call combining them as well. The cards also have to belong to the same bank. For this example we’re going to use Chase because Chase has a great variety of credit cards just like American Express does.
Amongst the list of credit cards Chase has the Sapphire, they have Freedom, they also have Freedom Unlimited and a regular one. They have a bunch of other cards that are related to travel. If you were to compare each one of these cards, some have an annual fee, and some don’t. For Sapphire, it’s also $95, for the Amazon card it’s $0 and for the Freedom one, it’s also $0.
With the Sapphire, you don’t get to pay the annual fee during the first year, but any year afterwards, you are required to pay $95. If after the first year you want to downgrade that card because you don’t want to pay those $95, you just need to call the 1-800-number in the back of the card, and ask them to help you combine two cards.
You can combine the card with the Amazon one or with any of the travel cards. The key point is that you have to merge the cards within the same bank. For example, if you have a credit line of $3,000, and maybe on the Freedom, you have $1,000.
Even if you refuse to pay the $95 or you don’t feel happy paying $95 for annual fee, if you choose the closest card, you’re letting go $3,000 worth of credit line. That’s not ideal because it will impact your credit score.
Close a Credit Card: Which one should stay active
You have to be careful when you call them. You have to be very clear that when you merge two cards, the one that should be standing at the end, the one that should still be active is the one without the annual fee because, obviously, if you don’t do that, they can make a mistake.
They can wind up combining it with the Sapphire, and you will still wind up having to pay $95 because you didn’t tell them which card you wanted to be active in the end.
Very important: Merge the credit cards, and then, tell them that you want the Freedom to be active and no longer the Sapphire. That way, you can keep the access to the $4,000. This is an example but the process applies to any bank.
The only downside of this strategy is that, for example, the freedom card only has one year worth of credit history but the Sapphire card has three years worth of credit history, when you’re combining the two, it will keep the primary card’s credit history. Meaning, one year, you’re letting go of three years.
It’s not ideal, but it’s better to let go three years, which is a very small percentage compared to the percentage that you will let go if you were to completely close a credit line of $3,000.
In the end, if you were to choose between the length of your credit history and your credit line, you will definitely rather keep the credit line because that’s a much higher percentage in your FICO score breakdown.
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